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KUTAK ROCK & HUIE
700 PILLSBURY CENTER
ATLANTA
MINNEAPOLIS, MINNESOTA 55402
OMAHA
1200 STANDARD FEDERAl..
SAVINGS BUIl..DING
ATLANTA,GEORGIA 30303
(404)622-8700
(612) 338-7008
THE OMAHA BUlL.DING
1650 FARNAM STREET
OMAHA, NEBRASKA sel02
(402)346.8000
WASHINGTON
DENVER
1330 COLORADO NATIONAL BUILDING
DENVER, COl..ORADO 80202
(303) 534-1330
August 5, 1981
1101 CONNECTICUT AVENUE,N,W.
WASHINGTON, D. c. 20036
(a02) 828-2400
Standard & Poor's Corporation
25 Broadway
New York, New York 10004
$6,000,000
City of Columbia Heights, Minnesota
Commercial Development Revenue Bonds
(Evenson Office Building Project)
Series 1981
Gentlemen:
This firm has acted as counsel to the underwriter in
connection with the issuance and sale by the City of Columbia
Heights, Minnesota (the "City") of the above referenced bonds
(the "Bonds"). The Bonds are bei ng issued pursuant to an
Indenture of Trust dated as of July 1, 1981 (the "Indenture")
between the City and First Trust Company of Saint Paul, St.
Paul, Minnesota (the "Trustee").
The Bonds are being issued to provide funds for the con-
struction of a commercial office building (the "Project"),
which Project will be owned by 'rerry Evenson, an individual
residing in New Brighton, Minnesota (the "Obligor"). Pur-
suant to a Loan Agreement dated as of July 1, 1981 (the
"Agreement") between the City and the Obligor, the City will
loan the proceeds of the Bonds to the Obligor for the purpose
of constructing the Project.
The Bonds will be payable from and secured by a pledge
of certain payments and other amounts to be received by the
Ci ty pursuant to the Agreement. Such payments are designed
to be sufficient to pay, when due, the principal of, premium,
if any, and interest on the Bonds.
The payment of the principal of the
secured by an irrevocable Letter of Credit
First National Bank of Saint Paul (the "Bank")
Bonds will be
issued by The
in the amount
KUTAK ROCK <& HUIE
Standard & Poor's Corporation
August 5, 1981
Page Two
of $6,000,000, an amount equal to the aggregate principal
amount of the Bonds (the "rJetter of Credit"). Pursuant to a
Letter of Credit Agreement dated as of July 1, 1981 (the
"Letter of Credit Agreement") among the Bank, the Obligor and
the Trustee, the Obligor will authorize the Bank to advance
against the Obligor's Demand Promissory Note (the "Promissory
Note") in an amount of up to and including $6,000,000 to pay
any draft drawn under the Letter of Credit.
Pursuant to a Mortgage dated as of July 1, 1981 (the
"First Mortgage") between the Obligor and the Trustee, the
payment of the principal of, premium, if. any, and interest on
the Bonds will be secured by a mortgage on and security
interest in the Project. In order to secure its obligations
under the Promissory Note and the Letter of Credit Agreement,
the Obligor will grant a mortgage on and security interest in
the Project to the Bank pursuant to a Statutory Mortgage,
Assignment of Leases and Rents, Security Agreement and Fix-
ture Financing Statement dated as of July 1, 1981 (the
"Second Mortgage") between the Obligor and the Bank. The
Second Mortgage will be subordinate to the First Mortgage.
Pursuant to a Securi ty Agreement dated as of July 1,
1981 (the "Security Agreement") among the Obligor, the
Trustee and the Bank, the obligations of the Obligor under
the Agreement will be secured by a security interest in cer-
tain cash and marketable securities and other instruments
owned by the Obligor (the "Securities"). In addition, the
Security Agreement will provide that the payments advanced by
the Bank against the Promissory Note and the Obligor's obli-
gations under the Letter of Credit Agreement will be secured
by a security interest in the Securities, which security
interest will be on parity with the security interest of the
Trustee.
The payment of the Obligor's obligations under the
Agreement, the payment of sums advanced by the Bank against
the Promissory Note and the Obligor's obligations under the
Letter of Credit Agreement will be secured by an Assignment
of Life Insurance dated as of July 1, 1981 (the "Assignment")
from the Obligor to the Trustee and the Bank. Under the
Assignment, the Obligor will grant to the Trustee and the
Bank separate but equal and coordinate security interests in
45 percent of the Obligor's right, title and interest in a
life insurance policy on the life of the Obligor in the
amount of $1,000,000.
KUTAK ROCK & HUIE
Standard & Poor's Corporation
August 5, 1981
Page Three
Pursuant to the Letter of Cred i t Agreement, the Trustee
will agree to release any and all collateral pledged or mort-
gaged to it (except rights to payment under the Agreement,
its security interest in the Construction Fund and the Bond
Fund created by the Indenture, and the Letter of Credit) upon
the written request of the Obligor and the Bank so long as,
a t or pr ior to the time of such request, the Bank releases
its security interest or lien on the same collateral.
The Bank will waive any right to set off any deposits or
assets of the Obligor or the City held by the Bank or indebt-
edness owed by the Bank to the Obligor or the Ci ty against
the obligation of the Obligor to make repayments under the
Letter of Credit Agreement.
The Bonds will have a term of three years (maturing
July 1, 1984), with interest only payable prior to maturity
(on July 1 and January 1, commencing July 1, 1982). A por-
tion of the bond proceeds will be used to fund interest on
the Bonds for a period of 18 months and to establish' an
interest reserve subaccount which will be funded from the
proceeds of the Bonds in an amount equal to six months of
interest on the Bonds.
To provide for the payment of the interest on the Bonds,
the Agreement requires that the Obligor pay, on or before
September 15 and March 15 of each year, commencing March 15,
1982, an amount which, together with any moneys then on
deposit in the Bond Fund established under the Indenture and
available for such purpose, will equal the interest to become
due on the Bonds on the next succeeding interest payment date
on the Bonds. To provide for the payment of principal on the
Bonds, the Agreement requires the Obligor to pay, on or
before March 15, 1984, an amount which, together with any
moneys then on deposit in the Bond Fund and available for
such purpose, will equal the principal to become due on the
Bonds on July 1, 1984.
Among
following
Agreement:
other
shall
events, the Agreement
constitute Events of
provides
Default
that
under
the
the
1. if the Obl igor shall fai 1 to make any loan
repayment when due and such default shall continue for
five days after written notice thereof has been given to
the Obligor by the Trustee and for ten days after
written notice thereof has been given to the Bank by the
KUTAK ROCK & HUIE
Standard & Poor's Corporation
August 5, 1981
Page Four
Trustee (the Trustee is
notice of default within
default); or
required to provide
two business days
written
of such
2. if the Obligor shall fail
repayment when due and such failure
15 days after the date on which such
due, i rrespecti ve of whether or not
such failure shall have been given by
Obligor or the Bank; or
to make any loan
shall continue for
loan repayment was
written notice of
the Trustee to the
3. the filing of a petition in bankruptcy by or
against the Obligor under the United States Bankruptcy
Code (the "Bankruptcy Code"); or
4. failure to pay the Letter of Credit fee when
due, continued for a period of five days after written
notice thereof has been given to the Obligor by the Bank
or the Trustee.
Upon the occurrence of an Event of Default as described
above, the Trustee is required to declare the principal
amount of the loan and any other indebtedness under the
Agreement to be due and payable on the next succeeding
interest payment date. Upon acceleration of the loan the
Trustee is required to draw such funds pursuant to the Letter
of Credit and to use such funds from the interest reserve
subaccount as shall be required, taking into account any
available proceeds of the Bonds or any funds available on
deposit in the Bond Fund and Construction Fund for a period
of at least 91 days prior to the expiration of which no
petition has been filed under the Bankruptcy Code naming the
Obligor as a debtor, to pay the principal of the Bonds and
accrued interest thereon, respectively, on the next interest
payment date.
,~e have been asked by the underwriter of the Bonds to
review the documents described above and to discuss for your
purposes in assigning a credit rating to the Bonds the right
of the Trustee under the Indenture to recei ve, retain and
distribute certain moneys in the event that either the City
or the Obligor becomes a debtor under the Bankruptcy Code, in
light of the provisions of Section 547(b) of the Bankruptcy
Code relating to preferential payments.
KUTAK ROCK I), HUIE
Standard & Poor's Corporation
August 5, 1981
Page Five
Section 547(b) of the Bankruptcy Code provides basically
that a debtor's trustee in bankruptcy may avoid any transfer
(1) of property of the debtor, (2) to or for the benef i t of a
credi tor for an antecedent debt owed by the debtor before
such transfer was made, (3) made while the debtor was insol-
vent, (4) on or within 90 days before the date of the filing
of a petition initiating bankruptcy proceedings (except for
an "insider" for which the applicable period is one year),
(5) that enables such creditor to receive more than it other-
wise would receive in a liquidation proceeding under the
Bankruptcy Code. Section 1107(a) of the Bankruptcy Code,
relating to reorganizations, provides that the debtor in pos-
session shall have the powers that a trustee would have in
the case. Section 902(4) of the Bankruptcy Code, relating to
the adjustment of debts of a municipality, provides that the
term "trustee" refers to the debtor itself as applied to
Section 547(b), except that under Section 926 a special
trustee may be appointed on request of a creditor to pursue
such transactions as a preferential payment.
Under the provisions of the
there are three, and only three,
Bonds:
documents described above,
sources of payments on the
1. proceeds of the Bonds
thereon (such as amounts initially
Fund and the Construction Fund);
and investment income
deposited in the Bond
2. funds received from the Bank drawn under the
Letter of Credit; and
3. funds paid by the Obligor under the Agreement
which pursuant to the Indenture have been held by the
Trustee for a period of at least 91 days prior to the
expiration of which period no petition has been filed
under the Bankruptcy Code, naming the Obligor as a
debtor.
For the reasons set forth below, in our opinion neither
the Obligor's trustee in bankruptcy nor the Ci ty (in a pro-
ceeding under Chapter 9 of the Bankruptcy Code or its special
trustee under Section 926 of the Bankruptcy Code) could avoid
as preferential payments, payments to the Bondholders from
the Trustee from any of the three sources described above.
KUTAK ROCK & HUIE
Standard & Poor's Corporation
August 5, 1981
Page Six
Bond Proceeds
As described above, bond proceeds and investment income
are amounts deposited in the funds established under the
Indenture from the sale of the Bonds and the income thereon.
All such amounts are received from the Bondholders and are
held for their benefit by the Trustee. For that reason they
should be found by a court not to be property of the City nor
to be property of the Obligor and their application to either
the indebtedness of the City or that of the Obligor, respec-
tively, would involve no transfer of the property of the City
or the property of the Obligor and Section 547(b) would not
apply. (Element (1) of Section 547(b) would be missing.) If
such amounts are considered to be property of either the
ObI igor or the Ci ty, the Trustee has a perf ected securi ty
interest therein and the application of such moneys to either
the indebtedness of the City or of the Obligor, respectively,
would not result in the Bondholders receiving more than they
would have otherwise received. (Element (5) of Section
547(b) would be missing.)
Funds Drawn Under Letter of Credit
If funds drawn on the Bank under the Letter of Credit
are used to pay Bondholders, there would be no transfer of
property of ei ther the Ci ty or the ObI igor and therefore
there could be no pref erent ial payment under Section 547 (b)
of the Bankruptcy Code. (Element (1) of Section 547(b) would
be missing.)
Funds Held for 91 Days
As described above, funds held by the Trustee which were
received from the Obligor cannot be distributed to the Bond-
holders unless such funds have been held for a period of at
least 91 days prior to the expiration of which period no
petition has been filed under the Bankruptcy Code naming the
Obligor as a debtor. Therefore, any such funds paid to the
Bondholders will have been transferred by the Obligor more
than 91 days before the date of the filing of the petition
initiating the bankruptcy proceedings. (Element (4) of Sec-
tion 547(b) would be missing.) Furthermore, Section 547(b)
would not be available to the City under Chapter 9 of the
Bankruptcy Code with respect to any interest that the City
might have in money paid by the Obligor to the Trustee for
the Bondholders pursuant to the assignment of the City's
interest in the Agreement to the Trustee under the
KUTAK ROCK <;. HUIE
Standard & Poor's Corporation
August 5, 1981
Page Seven
Indenture. The Trustee has a perfected security interest in
all of the City's right, title and interest in such moneys
and the application of such moneys to the payment of its
Bondholders will not result in the Bondholders receiving more
than they would have otherwise recei ved. (Element (5) of
Section 547(b) would be missing.)
If you have any questions concerning the matters dis-
cussed in this letter, please do not hesitate to contact us.
Very truly yours,
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