CC - Item 4E - Request for Subordination, Gavey Wholesale Beverage Itee °
staf f eport
TO: HONORABLE MAYOR
AND MEMBERS
ROSEMEAD CITY COUNCIL
FROM: FRANK G. TRIPEPI, CITY MANAGER
DATE: NOVEMBER 17, 1999
RE: REQUEST FOR SUBORDINATION,
GARVEY WHOLESALE BEVERAGE
On November 25, 1997, the City Council approved an economic development
loan to Garvey Wholesale Beverage in order to expand business operations.
This economic development loan was for $50,000 and the principal and interest
were deferred for ten (10) years, providing that the owner remained in business
and continued to own the site. At the end of the ten (10) year period, the owner
would be eligible for full forgiveness of the loan and interest if the owner met the
loan obligations for the full ten (10) years. This economic development loan was
junior (subordinated) to a building purchase loan made by Omni Bank in May
1996.
Since the loan was made, Garvey Wholesale Beverage has remained an
owner/occupant of the premises and has maintained the premises in accordance
with requirements. Garvey Wholesale Beverage desires to refinance the original
building purchase debt. The original loan between Garvey Wholesale Beverage
and Omni Bank was for a non-amortized loan at nine percent (9%) for ten years
with a balloon payment due at the end of the term. The proposed loan between
Garvey Wholesale Beverage and Citizens Business Bank is for a fully-amortized
loan at eight percent (8%) interest for fifteen (15) years, with no balloon payment.
CCDNCIL AGENDA
NOV 231999
ITEM No. • &+ !-E
Request for Subordination, page 2
Citizens Business Bank has asked the City to subordinate its loan to the
proposed loan, in order to retain first position. Staff has reviewed the request
and recommends that the City subordinate its position in order to allow the owner
to refinance the original building purchase loan for the following reasons:
1. The proposed loan would replace an existing first loan (by Omni Bank) and
the City would remain in its current position;
2. The proposed loan by Citizens Business Bank offers a better interest rate,
longer term and full amortization, thereby improving Garvey Wholesale
Beverage's economic position. If the City does not subordinate its loan,
Citizens Business Bank will not make the proposed refinance loan;
3. The original economic development loan is deferred and was made for the
purpose of retaining an owner/occupant of the site for ten (10) years. There
are still eight (8) years left on the agreement/loan. If the City requires that the
loan be repaid, then the covenants governing owner/occupancy will be
eliminated;
4. There is no cash to the owner. The proposed loan is only for the balance of
the loan due to Omni Bank.
RECOMMENDATION
Staff recommends that the City Council agree to subordinate its deferred
economic development loan to the proposed loan by Citizens Business Bank and
that the City Manager be authorized to execute documentation approved as to
form by the City Attorney.