BC 1988 06 09 - Laserfiche WebLink

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398 A portion of each annual lease payment is designated as a principal and interest component which allows application of the principal toward the purchase as outlined in the lease agreement. Usually, the Lessor disallows a prepayment or call in the early years and in later years allows exercise of the purchase option (there may be a penalty for prepayment in the early years of the financing). The lease is usually secured through non-tax revenue pledges of the Lessee and debt service coverage is required to be at least 1.2 - 1.5 times the annual lease obligation. If additional parity debt is issued the Lessee is usually required to increase the coverage ratio to 1.5 - 2.0 times the annual lease obligation. Additionally, the Lessee is required to enter into certain covenants and warranties which would provide assurances to the Lessor. These include such things as the continuance of the Lessee as a viable, healthy public entity, that they would not take any action that would adversely affect the exclusion from gross income of the designated interest component of the lease payments, that they would not issue more than $10mm in debt or obligations during the present calendar year and they would be willing to pledge additional non-tax revenue if the coverage falls below the required amount during any year over the term of the lease. The title of the leased facility or interest therein is held in the name of the lessor until all terms of the lease agreement are fulfilled. Normally, the agent for the Lessor is the Lessee who agrees to act for an in behalf of the Lessor as defined in the lease agreement. The agent is involved in acquisition, construction and installation phases through the application of funds as disbursed from the construction fund by the Lessor. The lease usually requires and specifies contractor performance bond limits and the various insurance coverages and risk management procedures that should be followed to eliminate liability exposures, during the construction phase as well as insurance coverage during the term of the lease. Events of default as defined in the lease involve both failure by the Lessee to pay the base lease as well as the additional lease payments which include expenses incurred by the Lessor in connection with the administration of the leased facility. Remedies for resolution of the payments are usually out- lined in the lease and are fairly flexible since it is in the best interest of the Lessor and Lessee to maintain and fulfill the lease requirements. They include taking action that would compel the Lessee to make payments from pledged non-taxed revenues and from other available sources. If the property (land) upon which the facility is constructed is owned by a party other than the Lessor, the Lessor is usually granted an easement during the term of the lease. III. Financing Lease Proposal In order to facilitate the construction of the $8.5mm Administrative Complex we propose the use of a two party financing lease entered into between Wachovia and Cabarrus County whereas Wachovia (hereinafter the "Lessor") would construct to the specifications of the County a 72,000 square foot Administrative Complex and Cabarrus County (hereinafter the "Lessee") shall agree to lease the facility from the Lessor for a period of 10 years after which the Lessee would purchase the facility for a nominal additional payment. The following terms and assumptions have been used in making our proposal: Final Maturity: Amount of Lease: Principal Repayment: Interest Repayment: Annual Debt Service: *Rate (Net Interest Cost): True Interest Cost: Cost of Issuance: Security: Initial Coverage: 10 years (1998) $8,500,000 Annual Quarterly $1,219,000 (Approximately) 7.15% 7.30% $35,000 Unrated 1.23 times Annual Lease Obligation or approximately $1,500,000 (will increase to 1.25 as of 3uly 1, 1988)