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Meeting Date: May 18, 2009Agenda Item No:

Kitsap County Board of Commissioners

Department: Commissioners OfficeStaff Contact: Nancy Buonanno Grennan, 337-7146Title: An Agreement (KC 194-09) by and among Bank of America, N.A., the

Kitsap County Consolidated Housing Authority, and Kitsap County Providing for a CreditFacility in an Amount not to Exceed $40,500,000 for the Purpose of Refinancing ExistingKitsap County Consolidated Housing Authority Loans Related to the HarborsideCondominiums Project and the Poplars Apartments.

Recommended Action: Move the Board execute the Agreement (KC-194-09) by andamong Bank of America, N.A., the Kitsap County Consolidated Housing Authority, andKitsap County Providing for a Credit Facility in an Amount not to Exceed $40,500,000 for thePurpose of Refinancing Existing Kitsap County Consolidated Housing Authority LoansRelated to the Harborside Condominiums Project and the Poplars Apartments.

Summary: In 2005 the County approved a contingent loan agreement that required the County toloan the Kitsap County Consolidated Housing Authority (the Authority) money for theHarborside Condominium project, in the event that the Authority would be unable topay the financing on its own. Just a year prior, the County had also entered into asimilar arrangement for the Poplars Apartments. These loans have or will shortlycome due. Because of a variety of factors, including the housing downturn and theimplosion of the credit markets, the Authority is unable to restructure or repay thoseloans. The County has been asked to fulfill its legal obligations to loan the Authority topay its debt. Under the terms of the Resolution providing for issuance of a limitedgeneral obligation bond anticipation note, the County-Authority Loan Agreement (KC195-09) and the Tri-party Credit Agreement (KC 194-09), the County will assumedirect responsibility for over $40 million of Authority debt.

The term of the new loan runs through April 30, 2013; it has a variable interest rate,starting under 2.5% and is sized to pay off the Harborside debt ($31.1 million), Poplars($5.09 million) and the County will have the remainder ($4.32 million) upon which todraw for carrying costs, including the interest-only payments due during the loansterm.

The County will be solely responsible for the Poplars debt. The remaining debt will bepaid through proceeds from the sales of Harborside condominiums, the adjacentvacant lot (the Sinclair Lot), proceeds from the sales of pledged assets, which includeoffice buildings, market rate apartments (non-low income or affordable housing units),and vacant lots, as well as the Authoritys excess revenues, as such become

available.

If proceeds from the asset sales are not sufficient to repay the loan, the County willneed to issue long-term bonds to cover the gap in 2013. However, the County willestablish a contingency fund, to set aside its own one-time only revenues.

The County and the Authority retained a financial consultant, Western FinancialGroup, to review market conditions and evaluate the fairness of the terms andconditions of the proposed $40.5 million loan to the County by Bank of America.Western Financial Group has deemed the terms and conditions taken as a whole, fairand reasonable in the context of the current market conditions. That opinion isattached to this agenda summary.

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C:\DOCUME~1\CSIEMS~1.KIT\LOCALS~1\Temp\XPGrpWise\AgendaSummaryTriPartyCred

itAgreement_1.doc

Attachments: 1.Tri-Party Credit Agreement2. Summary of Key Terms3. Western Financial Groups Fairness Opinion

Fiscal Impact

Expenditure required for this specific action: $40.5 million loan

Total cost including all related costs: $40.5 millionRelated Revenue: Proceeds from sale, repayment from

KCCHACost Savings:Total Fiscal Impact: $40.5 million

Source of Funds: New debt instrument

Fiscal Impact (DAS) Review None

Departmental Coordination

Department/Office Representative Recommendation/Comments

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Tri-PartyCreditAgreementSummaryofTerms

KitsapCounty(County)KitsapCountyConsolidatedHousingAuthority(KCCHA)

BankofAmerica,NA(BofA)

Page 1 of 3

1.NEWBofALOANTOKITSAPCOUNTY

Amount:$40.5mm LimitedTaxGeneralObligationBondAnticipationNoteNon-Revolving

CreditFacilityUseofLoanProceeds:

Payoff(atclosingoftheNewLoan):

Harborsideconstructionloan $4.99mm Harborsideconstructionlineofcredit $3.90mm Poplarsloan $5.09mm

Payoff(ateitherJuly1orAugust1):

HarborsideBonds $22.20mmDraw(overtheloanterm):

Carryingcosts,Interest,transactioncosts $4.32mmInterestPeriodOptions:

~4yearsmaturing4/30/2013 Interestresetoptions:Daily,1,3,6,9monthperiods

Interestrates:

LoaninterestratesarecalculatedfromLIBORtheLondonInterbankOffered

Ratewhichiscommonlyusedasanindexforinterestratesonthistypeofloan.Forthenewloan,LIBORisassumedtobenolowerthan0.75%

Taxable(~$35mmofthetotalloan)o LIBOR+1.65%o May14,2009Ratefor1monthperiod: 2.40%

TaxExemptBankQualified(~$5.0mmofthetotalloan)

o 65%ofLIBOR+1.28%o May14,2009Ratefor1monthperiod: 1.77%

DefaultRate

o Normalrate+3.00%

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Page 2 of 3

LoanFeetoBank: 0.20%oftotalloanor$81,000

Amortization:

Interestonlyallprincipaldueatmaturity

Interestpayments: Quarterly

BankSecurity/collateral:

CountyFullFaith&Credit CovenanttoissueLTGObondsorrefundingBANS 1stlienDeedofTrustHarborside 1stlienDeedofTrustSinclair 2ndlienDeedofTrustTreeTopsI&II(upto$2.3mm)

Prepayment&Partialrelease:

Noprepaymentpenaltyifpaymentmadeatinterestresetdate Partialreleaseofliensonpropertyascollateralsold

CountySecurity/Collateral(fromKCCHA)

3rdlienonTreeTopsI&II 1stlienonManzanita 1stlienonPoplars 1stlienonNordic 1stlienonParkview 1stlienonSoundview

Commitmentfee:

IfBondsnotredeemedby7/1/09(butinsteadpaidatmaturityon8/1/09) 0.50%perannum/actualdays/360dayyear

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Page 3 of 3

2.BofALOANSTOKCCHA

LetterofCreditExtensiono 4/1/09maturityextendedto4/30/11o Increasetotalto$2.6mm

$2.32mmoutstanding +$281,000advancesforinterest(monthly)

o 2ndlienDeedofTrustonTreeTopsIandIIo InterestRates:

LIBORfloorof0.75%

TaxExemptBankQualified 65%ofLIBOR+1.44%

Taxable LIBOR+2.00%

Defaultrate Regularrate+6.00%

o Otherterms: CovenantsellTreeTops&pay Confirmationofotherexistingterms KCCHAgeneralrevenuepledge

MaintenanceBuildingloan

o ~$438,000o 1stlienDeedofTrusto Crossdefaultso Confirmationofotherexistingterms

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Page 1 of 3

1.NEWBofALOANTOKITSAPCOUNTY

Amount:$40.5mm LimitedTaxGeneralObligationBondAnticipationNoteNon-Revolving

CreditFacilityUseofLoanProceeds:

Payoff(atclosingoftheNewLoan):

Harborsideconstructionloan $4.99mm Harborsideconstructionlineofcredit $3.90mm Poplarsloan $5.09mm

Payoff(ateitherJuly1orAugust1):

HarborsideBonds $22.20mmDraw(overtheloanterm):

Carryingcosts,Interest,transactioncosts $4.32mmInterestPeriodOptions:

~4yearsmaturing4/30/2013 Interestresetoptions:Daily,1,3,6,9monthperiods

Interestrates:

LoaninterestratesarecalculatedfromLIBORtheLondonInterbankOffered

Ratewhichiscommonlyusedasanindexforinterestratesonthistypeofloan.Forthenewloan,LIBORisassumedtobenolowerthan0.75%

Taxable(~$35mmofthetotalloan)o LIBOR+1.65%o May14,2009Ratefor1monthperiod: 2.40%

TaxExemptBankQualified(~$5.0mmofthetotalloan)

o 65%ofLIBOR+1.28%o May14,2009Ratefor1monthperiod: 1.77%

DefaultRate

o Normalrate+3.00%

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Page 2 of 3

LoanFeetoBank: 0.20%oftotalloanor$81,000

Amortization:

Interestonlyallprincipaldueatmaturity

Interestpayments: Quarterly

BankSecurity/collateral:

CountyFullFaith&Credit CovenanttoissueLTGObondsorrefundingBANS 1stlienDeedofTrustHarborside 1stlienDeedofTrustSinclair 2ndlienDeedofTrustTreeTopsI&II(upto$2.3mm)

Prepayment&Partialrelease:

Noprepaymentpenaltyifpaymentmadeatinterestresetdate Partialreleaseofliensonpropertyascollateralsold

CountySecurity/Collateral(fromKCCHA)

3rdlienonTreeTopsI&II 1stlienonManzanita 1stlienonPoplars 1stlienonNordic 1stlienonParkview 1stlienonSoundview

Commitmentfee:

IfBondsnotredeemedby7/1/09(butinsteadpaidatmaturityon8/1/09) 0.50%perannum/actualdays/360dayyear

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Page 3 of 3

2.BofALOANSTOKCCHA

LetterofCreditExtensiono 4/1/09maturityextendedto4/30/11o Increasetotalto$2.6mm

$2.32mmoutstanding +$281,000advancesforinterest(monthly)

o 2ndlienDeedofTrustonTreeTopsIandIIo InterestRates:

LIBORfloorof0.75%

TaxExemptBankQualified 65%ofLIBOR+1.44%

Taxable LIBOR+2.00%

Defaultrate Regularrate+6.00%

o Otherterms: CovenantsellTreeTops&pay Confirmationofotherexistingterms KCCHAgeneralrevenuepledge

MaintenanceBuildingloan

o ~$438,000o 1stlienDeedofTrusto Crossdefaultso Confirmationofotherexistingterms

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Page 1 of 3

Memorandum

May14,2009

TO: KitsapCountyBoardofCommissioners KCCHABoardFROM: WesternFinancialGroupRE: MarketConditions&ProposedBankofAmericaLoanKitsapCounty(theCounty)andtheKitsapCountyConsolidatedHousingAuthority(KCCHA)haveaskedWesternFinancialGroup(WFG)toreviewmarketconditionsandevaluatethefairnessofthetermsandconditionsoftheproposed

$40.5millionloantotheCountybyBankofAmerica,NA(BofA).BACKGROUND

WFGhasservedasfinancialadvisortogovernments,nonprofitsandcompaniessinceitwasfounded1995.Priortothat,theWFGteamwasengagedinthepublicfinanceindustryinthePacificNorthwest(andnationally)fortwootherfirms.Inthecourseof24+yearsinthebusiness,WFGsprofessionalshavemanagedhundredsoftransactionsinvolvingbillionsofdollarsofpublicandprivatedebt.WFGsfourseniorprofessionalsservesomeofthelargest,mostcomplexentitiesintheNorthwestandhavebroadanduptodateexposuretoconditionsinboththe

taxableandtaxexemptcreditmarkets.METHODOLOGY&SUMMARYCONCLUSIONS

InordertoevaluatethetermsandconditionsoftheBofALoan,WFGgatheredinformationonpotentialcomparabletransactionsthroughtwomethods.First,thetermsandconditionsoftheBofALoanwerecomparedtotworecentcompletedtransactionsforwhichWFGhaddetailedinformation.Second,WFGsteamsoughtnotionaltermsandconditionsforacomparableloanfromfourlendersactiveinthetaxableandtaxexemptmunicipalvariableratedemandbond/notemarketsintheNorthwest.

Itisimportanttonotethat,eveninmorenormaltimesinthecreditmarkets,taxablemunicipalmarketinformationislimited.Inthecurrentfinancialcrisis,mostmarketsarelessliquid(andtransparent)thannormal.Thisiscertainlythecaseforthecurrenttaxablemunicipalmarkets.Therefore,comparablescanonlybeevaluatedintermsofrangesoftermsandconditions.

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Page 2 of 3

Withtheseanalyticallimitationsinmind,WFGhasevaluatedthefairnessoftheBofALoan.Fairnessinthiscasemeans:ArethetermsandconditionsoftheBofALoan,takenasawhole,fairandreasonableinthecontextofcurrentmarketconditions?

Iftheanswertothatquestionwasno,theCountysandKCCHAsinterestsnarrowlydefinedasthetermsandconditionsonthisloanwouldbebestservedbyrejectingtheBofAloanproposalandseekingmultipleproposalsfromotherlenders.Ofcourse,eveninthatcircumstance,theCountyandKCCHAwouldbefacedwiththeworkoutchallengespresentedbytheoutstandingborrowingsfromBofAandthereforemightstillproceedtoclosethenewBofALoan.WFGsanalysis,however,indicatesthattheBofALoan,asnegotiatedbytheCounty/KCCHAteam,isfairbythedefinitionabove.TheBofALoantermsandconditions(withonenotablebutnotdeterminativeexception)arewithintherangesWFGconsiderstobereflectiveofthecurrentmarketconditionsandpotentialloans

availabletotheCountyandKCCHA.LOANSTRUCTURE

Becausethepartiesintendthatcertainpropertiesbesoldassoonaspossible,anddebtretiredassaleproceedsarereceived,theBofALoanisstructuredasvariableratedemandnotes,orasmoretechnicallydescribedintheloandocuments:LTGOBondAnticipationNoteNonRevolvingCreditFacility.ThisstructureallowstheCountytochoosefromaseriesofinterestresetperiodsrangingfromonedaytoninemonths,andtoladderthestructurewithportionsofthetotaloutstandingallocatedtodifferentresetperiods.

Asnotedabove,repaymentoftheloanisexpectedtobeprimarilyfromproceedsofpropertysales.UltimatesecurityfortheloanisthefullfaithandcreditcommitmentoftheCountytoissuelimitedtaxgeneralobligationbondstofundoutanyremainingbalanceattheendofthefouryearterm.Additionally,andthisistheoneareawheretheBofALoandiffersfromnormal,theBofALoanincludessecurityinterestsincertainKCCHAproperties.WFGsmarketinformationindicatesthatthisfeaturedoesnotgenerateimprovedpricingfortheLoanamongothervendors.ANALYSISOFMAJORTERMSANDCONDITIONS

WFGanalyzedkeytermsandconditionstodeterminehowtheproposedBofALoancomparedwithpotentialloansfromotherlenders.StructuralTermsandConditions

Keynonfinancial(i.e.structural,reporting,etc.)termsandconditionsincluded:

Security

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Prepayment Covenants(reporting,financialcontrols,etc.) Defaultprovisions Otherfactors

o Depositoryrelationshipso Lineofcreditforexpenses

Withtheexceptionnotedaboverelatedtotherealestatesecurity,WFGsanalysisindicatesthatthetermsandconditionsoftheBofALoanarecustomaryforafinancingofthistypeincurrentmarkets.ThereasonWFGdoesnotfindtherealestatesecurityprovisionsdeterminativeistwofold:1)therealestatesecurityprovisionsdonothindertheCountysabilitytoliquidatepropertiesorotherwiselimitfinancialflexibility;and2)thevariablerateloanstructure,alongwithappropriateprepaymentterms,providetheCountywiththecapabilitytorefinancewithanotherlenderandwithouttherealestatetermsshouldtherebesomeunanticipatedproblemrelatedtothoseterms.

OneareainwhichtheBofALoanismorefavorable(fortheborrower)thanalmostallothermarketparticipantsisthatBofAdoesNOTrequirethatalldepositoryrelationshipsoftheborrowerbewiththelenderbank.FinancialTerms

ThetablebelowsummarizestheresultsofWFGsanalysisofcomparablesforkeyfinancialterms:

TermorCondition BofALoan MarketCompBest MarketCompWorst

Term 4years 36years 1yearInterestresetperiods Daily,1, 3,6,9months Daily,1,3,6,9months Daily,1, 3,6,9months

LIBORfloor 0.75% 0.00% 1.50%

Interestratestaxable LIBOR+1.65% LIBOR+1.27% LIBOR+4.25%

Interestratestaxexempt

65%ofLIBOR+2.10%

n.a. 62.5%ofLIBOR+4.60%

Interestratestaxexempt,bankqualified

65%ofLIBOR+1.28% 63.5%ofLIBOR+0.85% n.a.

Loaninitiationfee 0.20% 0.10% 0.50%

Estimatedexpenses $30,000 $10,000 n.a.

5/14/09InterestRatetaxable(1month)

2.40% 2.00% 5.75%

5/14/09InterestRatetaxexempt/BQ(1

month)1.77% 1.07% 3.81%

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