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April a, ] 993
HONORABLE CITY COUNCIL
Palo Alto~ California
~YTTOB GARDENS III UPDATE REPORT
Members of the Council:
This is an inforrnatio~al repcrt and no Council action is required~
Report in Brief
In August 1991~ staff reported that the $1,2 million reserve on the
$13.6 million City of Palo Alto Insured Revenue Bonds (issued on
behalf of Lytton Gardens, Inc.) had been reduced to $.4 million,
but that the management of Lytton Gardens had assured staff further
reQucticns of the reserve would be un,"lecessary. This update report
shows that Lj'tton has not been able to mair.tain its sched-..:.led
monthly payments to the bank, which are used for semi-annual
payments to bondholders. The remaining bond reserve is still
sufficient to assure bondholder payments for June 1993.
Lytton Gardens, Inc. (LGI) is 3 California nonprofit public benefit
corporation established in May 1980 by community Housing, Inc.
(CHI). CHI, also a nonprofit public benefit corporation, was
created in February 1970 by members of t'lro'O Palo Alto churches for
the purpose of developing housing for sei.'lior citizens \oI'ith low
incomes.
Lytton Gardens III is a skilled n~rsing facility and convalescent
hospital built by CHI on Webster Street. In october 1981, the City
issued City of Palo Alto Insured He.a1th Facility F.evenue Bonds of
$9.6 million to acquire, construct and equip Lytton III.
CMR:233:93
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In October 19a2 and ag,:!in in Dece~ber 1986. the city advance
refunded the bonds. The last financing ~dS in the principal amQunt
of $13.4 million and had a $1.2 million reserve.
The bond covenants call for interest-only payments to bondholders.
front 1987 th:-ough 1996; payment of the $1::-'.4 million principal does
not begin until 1997. As staff reported in August 1991
!CMR:JB7:91} .. the semi-armual inte_rest payn-.e::'lts to the. holders of
the 1986 l:xm:js have beer_ Bade on a timely basis, but only because
the trustee used funds frem the $1.2 rr.il1icn bO:ld reserve account.
During the period from Gec9mber 1989 througt. April 1991, the
corporation was unable to ~ake full deposits toward the interest
only payments, thus requiring the use of the reS€r've. By ~ugust
1991 the reserve had been reduced t.l' t .... ·o-thirds l to $427 {ooo.
In the staff report~ it \Ilas noted that t;-:€: Chief Executive Officer,
Stephen Shi.?ley I took over in August 1'990. At the time of the
report, Mr. ShIpley indicated th3t Lytton III had been '"turned
around~ finanCially. He ir:dicated that both he and the LGI beard
were confident that they .... "uld be able to continue debt service
payments and begin replenishing the depl~ted reserve in the near
future.
In CMR:504:91 dated November 1-4, 1991, staff trans!!Iitted informa
tion from the audited financial statements for LGI for fiscal years
ending Ma:-ch 31, 1990 arid 1991. The financial statements showed
that, through the date of the audit, LGI continued to have an
operating deficit af approximately $0.5 million, and that the
accumulated fund def iei t had increased by 14 percent, from $3. e
million to $4.4 million.
l'uture p.ayments
Accc.rding to Mr. Shipley in a letter dj,ted Decemhr-r 31, 1992 1
Lytton III is still operating at a deficit. Staff has also been
infor1l'!ed by the ..... rustee for the bond issue, Bank of Ameri ca, that
Lytton III has been late .... ith its February and March deposits
toward the bond interest payment due June 15, 1993. Interest of
$443,290 is payable on JLJne 15 and Dece7,ber 15 each year. The
first principal payment of $345,000 ~ill be added in 1997. It is
anticipated that the Trustee will be able to make the 1993 pay~ents
to bondholders; but unless the cash flew situation at Lytton
improves, there is a possibility that the remaining reserve could
be depleted before principal repayments begin to come due.
st?!'r will continue to monitor the situation and 'Will return to
Council, if it appears that the payments by LGI and the reserves
he.ld by Bank of .. lI.-merica are not SUfficient to make payments to the
bondholders.
CMR:233!93 2
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Respectfully submitted, .
h-' {~7' )>s/:Ct-f
GoRDoN B. FORD
Treasury Manager , , r ,I '-, , /' r If'} f ) J:.../ __ ,,/ ~~ __ 1~,C,L\~
=:rLY HARRI SON __
Director of Finance
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Related Staff Reports:
CMR:233:93
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CMF:J87!31
CMR: 504:91
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