GM Questions

From: Grubb, Charles
Sent: Wednesday, August 07, 2013 4:09 PM
To: Lyndon Johnson (LJohnson@Caddo.org); Commissioner Lyndon B. Johnson
Cc: Todd Hopkins; Dr. Woodrow Wilson, Jr.; Donna Frazier
Subject: GM

Lyndon,

I decided that the answers to your questions may be short and objective enough that I can answer them by email.

1. Why the 25 year lease term as opposed to something shorter?

Mr. Lichter told us he needed this term with a 25 year amortization in order for the transaction to work for him.

2. Why the "low" lease terms?

Of course that is a function of the amortization, so the answer to this question is really the same as that to question no. 1. Additionally, he is leasing that portion of the plant designated for Elio's use under very favorable terms to Elio in the early years in order to help Elio go into production.

3. Why are we transferring the equipment to the IDB if it has liens against it?

Transferring the equipment to the IDB removes it from the tax rolls and facilitates a PILOT payment to the Board equal to what the taxes would have been as an additional payment on reimbursing the Parish its $7,500,000 investment.

4. If Elio defaults on its payments to Racer Trust for the equipment, what happens to the equipment?

Were that to happen, Racer Trust could foreclose on the equipment and force its sale to third parties.

5. Who negotiated the deal on behalf of Caddo Parish?

Ray Cornelius, myself and Donna Frazier, in that order of involvement.

6. How do the lease payments effect other taxing entities?

With an anticipated 2013 assessment reflecting an $11,000,000 value, the aggregate taxes to all such bodies is approximately $234,000. These entities will lose their pro-rata share of these funds until the Parish is repaid in full on its $7,500,000 plus 8% interest per annum. If IRG is successful in developing industrial tenants for the building, as its occupancy rises so should its assessed value, so if this happens as time goes by these entities should recoup what they lose in the short run but receive greater tax revenues in the future.

7. A. Why are we requiring 15% of sublease revenue to IRG be dedicated to repaying the Parish funds provided for the purchase of the building?

Mr. Cornelius was successful in negotiating that term with Stuart Lichter of IRG as an additional revenue source for repayment of the Parish's investment in purchasing the property.

B. The payroll credit.

The credit is established at $35,000 per $1,00,000 in payroll for jobs physically housed at the plant. This credit, which is a significant incentive for IRG to develop lessees with significant payrolls, is by current standards not particularly generous to IRG. However, the more successful IRG is in increasing plant occupancy and therefore payrolls for jobs located at the plant, the more valuable the credit is to IRG. It is possible that most of the Parish's $7,500,000 investment will not be paid back directly as cash but rather through application of the payroll credit. Of course high plant payrolls imply higher assessed valuations for the plant and perhaps surrounding tracts, increased economic activity and the tax benefits that go with that. One was to look at the credit is that the more valuable the credit is to IRG or the more "costly" it is to the Parish, the more successful IRG will have been in developing economic activity at the plant.

I hope this satisfactorily addresses the questions you have raised. Please advise if not or if I can assist by providing any other information you would find helpful as you assess this very complicated transaction.

Charles

Charles C. Grubb
Parish Attorney
Parish of Caddo
505 Travis Street, Suite 810
Post Office Box 1127
Shreveport, LA 71163-1127
Telephone (318) 226-6947
Facsimile (318) 226-6974