TOWN OF PRESCOTT VALLEY REQUEST FOR COUNCIL ACTION Date: July 20, 2017

Transcription

1 TOWN OF PRESCOTT VALLEY REQUEST FOR COUNCIL ACTION Date: July 20, 2017 SUBJECT: Proposed Town Participation in Events Center Bankruptcy Plan SUBMITTING DEPARTMENT: Executive Management Legal Department PREPARED BY: Larry Tarkowski, Town Manager Ivan Legler, Town Attorney AGENDA LOCATION: Comments/Communications, Consent, Work/Study, New Business, Public Hearing, Second Reading ATTACHMENTS: a) Resolution No w/attached Analysis of Prescott Valley Convention & Events Center Community Valuation, and (b) Collateral Assignment of Certain Rights and Remedies Inuring from the Amended Intergovernmental Agreement, Entered into July 20, 2017 By and Between the Town of Prescott Valley, Arizona, and the Entertainment Center Community Facilities District SUMMARY/BACKGROUND: The operator of the Prescott Valley Events Center filed for Chapter 11 Bankruptcy on August 14, Since then, a Plan of Reorganization has been developed which proposes to include the Town and the Entertainment Center Community Facilities District. That Plan was initially filed with the Bankruptcy Court on June 2, The Court then held a hearing on the Plan on July 12, 2017 in Phoenix, after which the modified Plan was again filed and sent out to creditors and other interested parties for voting. HISTORY: In April 2004, representatives of Global Entertainment Company approached local business leaders and Town officials about locating a multi-purpose convention and events center of approximately 5,000 seats in Prescott Valley. A 2.81-acre site owned by the Fain family was identified and GEC, Fain, and the Town agreed to share the costs of an initial study to consider whether such a facility could be sustained primarily through event revenues (supplemented by certain assistance from the Town). On February 24, 2005, that study was considered by the Town Council. It suggested such a facility would not be self-supporting but could develop enough event-based revenues to allow financing and operation with assistance from the Town. After discussion, the Council directed staff to begin negotiations towards a development agreement that would set forth the Town s involvement. On May 6, 2005, the Council approved a development agreement with Fain, GEC, and a new entity formed by Fain and GEC (the Prescott Valley Events Center, LLC) that formalized the Town s involvement. PVEC (with GEC assistance) would design and construct the facility. PVEC (through GEC) would operate it. The Town would assist PVEC and GEC in obtaining financing by making available (1) one-time fees and charges associated with construction; (2) estimated one-time Transaction Privilege Taxes associated with construction; (3) ongoing TPTs from sales inside the facility; (4) an annual Town payment for public use of the facility; (5) TPTs owed to Fain under a previous downtown development agreement; (6) 1% of the 2.33% of TPTs collected in the downtown, and (7) 2% of the 2.33% of TPTs collected in a separate area located mostly south of State Route 69. This development agreement was subsequently amended on October 6, 2005 to remove any cap on the TPTs collected in the separate area. 1

2 With this help, PVEC and GEC obtained financing through a $35,000,000 taxable bond issued by the Industrial Development Authority of Yavapai County. PVEC was the borrower and GEC used the proceeds to build the facility. The facility was completed in October Per the development agreement, the Town formed the Entertainment Center Community Facilities District to take title to the facility and lease it back to PVEC for operation. Like other CFDs the Town has formed, there was an intergovernmental agreement between the Town and ECCFD for the Town to provide all the operation and administration (including funding). What was then called the Tim s Toyota Center started out with high hopes. But, this was the beginning of the international economic downturn and Center revenues were not as high as planned. In addition, the communication with the Town about budgeting for a possible bond payment under the development agreement was inadequate. Therefore, when the bond trustee sent an invoice 10 days before payment was due for $1,171,677.90, the Town indicated that amount was not in its FY budget and it was not prepared to make that particular payment at that time. This resulted in Wells Fargo making the payment from the debt service reserve fund. Although the Town made all subsequent semi-annual payments starting with April 1, 2008 (including catch-up payments), this started a sequence of events that ultimately led to Wells Fargo and the bondholders (including Allstate) filing lawsuits against the Town, Fain, GEC and many others in September The litigation stretched out over a period of 5 years. By November 1, 2013, the Town had received favorable pre-trial rulings that made it no longer a party defendant. But, to preserve those rulings (and avoid an appeal) the Town joined Fain and others in a settlement with Wells Fargo and Allstate that the judge approved on September 15, Under the settlement, the Town paid $250,000 (through its insurer) and agreed to continue making payments under the development agreement over the remaining term even if the Center closed. Wells Fargo and Allstate would then allow the money the Town paid each year for public use to go directly to the Center instead of toward debt service on the bonds. Fain would pay $750,000 and work to keep the Center open (and try to bring in a new hockey team). And, Wells Fargo and Allstate would not raise legal issues if Fain eventually obtained Town approval to put a residential apartment complex in downtown (instead of commercial developments that would pay TPTs toward debt service on the bonds), nor if the Town applied a 2% surcharge against rents from such a complex (which would then be applied directly to the Center). The Council ratified this Settlement Agreement on October 16, BANKRUPTCY AND PLAN: GEC filed for bankruptcy shortly after the Settlement, and was eventually liquidated. New entities created by the Fains then took over PVEC and began operating what was now called the Prescott Valley Events Center. On August 14, 2015, PVEC filed its own bankruptcy petition for reorganization in hopes of (at minimum) removing its obligation as borrower under the bonds. The new entities also filed for bankruptcy at the end of the year. As record owner of the Center and lessor to PVEC, ECCFD was an interested party in any Chapter 11 reorganization plan that might result from the PVEC bankruptcy. The Town was also an interested party based on the development agreement, and was a creditor based on providing utility service to the Center and a claim it filed for the litigation costs paid by its insurer. Therefore, when Allstate sold its interest in the bonds at a considerable loss to an investment group called Lapis in early 2016, Lapis approached the Town about the possibility of the Town (or ECCFD) issuing new tax-exempt municipal bonds that could be exchanged under a bankruptcy plan with all bondholders for their current bonds. This proposal was later modified to having the new bonds be made part of the bankruptcy estate in order to purchase the Center and other assets. It was expected that the annual payments for debt service on the new bonds would be less than what the Town was paying semi-annually under the development agreement, leaving a 2

3 balance available for the Town/ECCFD to hire a professional operator to run the Center, help finance the bankruptcy costs, and (over time) provide funds for other governmental uses. Based on this proposal, the bankruptcy plan emerged which has now been submitted to creditors and other interest holders. Here are the outlines of that Plan: (1) The obligations and duties under the 2005 development agreement (as well as a prior downtown development agreement dated Feb 24, 2000) between and among the Town and the other parties thereto who are creditors, interest holders, debtors or their affiliates under the Plan will be deemed released, extinguished, and cancelled (so as to remove any obligations for PVEC to finance, lease, and operate the Center, and for the Town to make ongoing payments of TPTs or other payments); (2) Section J of the Settlement Agreement will be deemed to be cancelled and of no further force or effect (removing the Fain obligation to continue operation of the Center and the Town obligation to continue making payments under the Development Agreements or apply any 2% surcharge against rents from a downtown apartment complex directly to the Center); (3) ECCFD will issue new tax-exempt bonds in the amount of $16,000,000 bearing 4% interest over 20 years (with a 10-year call). In order to qualify as tax-exempt, these new bonds will become an asset of the bankruptcy estate in order to remove the reversionary interest PVEC still holds on title to the Center and obtain all the personal property owned by PVEC to operate the Center and all of the operation agreements (including a sublease with the Northern Arizona Suns and any contract with a professional manager), and rescind the Center lease with PVEC; (4) A first bond will be issued to PVEC, which will then request that a Second Bond be created and registered in the name of a nominee of DTC so the New Bonds are made available for transfer though the DTC system to the Current Bondholders at a ratio of $ for each $1,000 in principal of the Taxable Bonds (with book entry credits of cash for any remaining fractional amounts for less than $1,000 authorized denominations). The taxable bonds and related obligations will then be deemed fully satisfied, cancelled, and discharged. Debt service on the New Bonds will be secured by payments unrelated to continued Center operation (the Town providing ECCFD with the amounts needed to make said payments per amendments to the IGA; (5) As a transition to payments to Current Bondholders under the New Bonds, on October 1, 2017 the Town will make the payment it otherwise would have made under the development agreement (approximately $970,000). $320,000 of that amount (subject to costs being deducted by the trustee) will then be paid to the Current Bondholders. If the Plan effective date occurs prior to November 1, 2017, the balance of the total amount paid by the Town will be returned to the Town. But, if the Plan effective date hasn t occurred by the first day of each calendar month from November 1, 2017 through February 1, 2018, an additional $54,000 per month will be taken from the amount paid by the Town and given to Current Bondholders (subject to costs being deducted). If the Plan effective date hasn t occurred by March 1, 2018, the balance of what the Town paid will be given to Current Bondholders (subject to costs being deducted). If the Plan effective date occurs between November 1, 2017 and March 1, 2018, the balance of what the Town paid will be returned to the Town. If the Plan effective date has not occurred by April 1, 2018, the Town will again make the payment it would have made under the Development Agreements and the process will be repeated until September 1, 2018; (6) PVEC will no longer be involved in Center operations, 3

4 (7) The Center liquor license held by one of the new Fain entities that make up PVEC will be transferred to ECCFD for a one-time payment of $75,000 (paid by the Town under the amended IGA); (8) A parking agreement for the Center between PVEC and Fain interests (dated October 2, 2006) will be modified and assigned to ECCFD. It will provide for: (a) 1,000 parking spaces in the designated areas around the Center (with any extra available along Main Street and in the Civic Center parking lots), (b) ECCFD having a non-exclusive license for 20 years to use the designated areas for Center events (including employee spaces), (c) quarterly payment of a license fee to the Fain interests for ticketed events equal to the greater of (i) $70,000 per year or (ii) $2.10 per ticket sold (both increased 3% annually), (d) quarterly payment of a license fee to the Fain interests for non-ticketed events of $500 per event day, (e) certain free or fixed-fee annual use of the Center by Fain interests (i.e., 50 hours free use for charitable and private events and continued use of box seats for $5,000 annually), (f) payment by ECCFD (from Town TPT revenues) for parking area insurance, maintenance, and repair costs, and (g) the Fain interests conveying the designated parking areas to ECCFD (but retaining a reversion interest) in order to save the cost of ad valorem taxes; (9) ECCFD will operate the Center going forward based on an assigned management agreement with a professional manager (Spectra). Under the agreement, ECCFD will work with Spectra on an annual budget for the Center. If event revenues are insufficient for all operation and capital costs, ECCFD will pay the balance (actually paid by the Town under the amended IGA); (10) The Town will help finance the bankruptcy (covering administrative costs and offering certain payments to creditors) by agreeing to pay into the Plan in semi-annual installments a total of $3,000,000 over 20 years; and (10) The Plan will recognize certain previous and current Fain claims and payments involving the Center for reimbursement over time. Attached is an Analysis of Prescott Valley Convention & Events Center Community Valuation that explains the history and Plan in more detail and evaluates the financial aspects of Town and ECCFD participation in the Plan. Among other things, it indicates that (a) continued operation of the Center is important for the Town s long-term economic health, (b) participation in the Plan by ECCFD obtaining and operating the Center using Town revenues (and Town financing of the Plan over time) is ultimately more economical for the Town than continuing to meet Town obligations under the development agreement, and (c) the conservative value to the Town (and, therefore, ECCFD) of the Center is at least equal to the value of the new bonds. PROPOSED ACTION: It is now proposed that the Town Council approve Resolution No (as an emergency measure) to (1) vote IN FAVOR of the Plan and otherwise approve the Plan in the event it is confirmed by the Bankruptcy Court, (2) conditionally commit (and bind) the Town to pay under the Amended IGA (and otherwise) the payments required by and under the Plan, including (but not limited to) the payments under the New Bonds, the Plan Payment Obligations, the Development Agreements Payments, the payment to purchase the liquor license for the Center held by J.A. Flats, LLC, and the payments under the Modified Parking Access Agreement. In particular, the expenditures required in Fiscal Year would be approved, (3) formally adopt, approve and ratify the Valuation Analysis attached to Resolution No.2008 as Exhibit A, (4) conditionally withdraw any Claims filed in behalf of the Town in the Bankruptcy, (5) conditionally authorize legal counsel to consent to and approve any Plan Confirmation Order to confirm the Town s obligations under the New Bonds and the Plan, (6) approve the Collateral Assignment of Certain Rights and Remedies Inuring from the Amended Intergovernmental 4

5 Agreement, Entered into July 20, 2017 By and Between the Town of Prescott Valley, Arizona, and the Entertainment Center Community Facilities District, (7) conditionally approve transfer of the Center liquor license between J.A. Flats, LLC to ECCFD (as required in A.R.S ), and (8) authorize the Mayor and staff to take such additional steps and sign such additional documents are may be necessary to consummate the Plan and carry out the Town s obligations thereunder. OPTIONS ANALYSIS: The Council may vote to approve Resolution No as an emergency measure to take the actions described above, approve the Resolution as a regular measure, or not approve Resolution No ACTION OPTION: Motion to authorize the Mayor (or, in his absence, the Vice Mayor) to sign Resolution No. 2008, as an emergency measure, taking actions to approve and have the Town participate the Bankruptcy Plan related to the Events Center, OR Motion not to approve Resolution No VOTE RECOMMENDATION: Staff recommends that the Council authorize the Mayor (or, in his absence the Vice Mayor) to sign Resolution No as an emergency measure. FISCAL ANALYSIS: Section C of the attached Valuation Analysis (p.10) discusses the Town s costs to-date under the development agreements and the estimated costs under the Plan going forward. It also analyzes the value of the Center to the Town and considers whether that value is equal to the costs the Town would incur under the Plan. It concludes that the value of the Center to the community makes participation in the Plan preferable (for a number of reasons) to remaining under the obligations of the development agreement and having continued uncertainty about the on-going viability of the Center. REVIEWED BY: Management Services Director Town Clerk Town Attorney Town Manager COUNCIL ACTION: Approved Denied Tabled/Deferred Assigned to 5