Portland stadium loan will be cheap -- for now
We've been looking through the term sheet that Bank of America has presented and the City of Portland has selected for the "interim" (up-to-five-year) loan of $12 million for the re-renovation of PGE Park. It appears that the city will be able to get some remarkably low interest rates for that bridge loan.
As we read the term sheet (with a somewhat untrained eye), the bank is offering the city four alternatives to pick from: two 3-year plans and two 5-year plans. All of these set interest rates based on something called LIBOR, a rate set daily by British banks, for U.S. dollar deposits. In the three-year scenario, the city can choose either a rate that floats daily at the LIBOR one-month rate plus 1.1%; or rates that lock in for periods of 1 to 12 months, at the corresponding LIBOR term rate plus 1.1%. The five-year options call for a daily floating rate of one-month LIBOR plus 1.2%, or 1-to-12-month locks at the corresponding LIBOR term rate plus 1.2%. If the city takes the full $12 million loan in a single draw at the closing (at last report, scheduled for March 10), the rate would drop by 0.1%.
That's cheap money. As of the latest figures we could find, 1-month LIBOR is 0.22875%; 6-month LIBOR is 0.38813%; and 1-year LIBOR is 0.85125%. If the city draws the whole loan at closing and chooses the five-year term and a daily floating rate, today the interest rate would start out at 1.32875% per year, or $159,450 a year on a $12 million balance. That interest would be fully taxable to the B of A, according to the city's request for proposals.
Of course, this loan will turn into a pumpkin at the end of three or five years, at which point the city says it is going to go out and secure long-term financing for its share of the stadium re-do. If it can't, or doesn't, get a permanent loan at that time, it will have to pay B of A back out of its general funds, as the deal is to be financed with a "Pledge of [the city's] full faith and credit, not subject to appropriation," according to the term sheet.
One interesting wrinkle comes in B of A's stipulation that the city covenant "to issue debt obligations in an amount sufficient to generate net proceeds, together with other resources of Borrower, to payoff the Credit facility in full." State law restricts the City Council, at least somewhat, from binding future City Councils, and one has to wonder whether any such covenant by the current commissioners would actually be enforceable. All matters for the lawyers to hash out between now and the closing, one would guess.
As for the other proposals that the city received and rejected, Chase presented only a three-year deal; Umpqua Bank was asking for a minimum interest rate of 3.5%; and Wells Fargo had slightly higher interest rates than B of A, with interest rate increases built in if the city's credit rating deteriorated.