HomeMy WebLinkAbout0385.093I
~
! ~ ·f
HONO~LE CITY COUNCIL
palo Alto, California
LJTTOI 9"91' xxx 'ORR !"IRVJ STATUS
Me.bera of the Counc i 1 ~
This is an informational report and no Council action is ~equired~
Report; ip Brief
The purpose of this re(:,lOrt is to inform the Council that Lytton
Garderts Inc. (Le1) has aqain used reserves to make the June 15,
1993 payment on the City of Palo Alto Insured Revenue Bonds, and
that only ~278,500 remains from the original $1.2 million required
reserve which ~s established in 1986. The bonds are insured by
the office of Statewide Health Planning and Development COSHPD).
staff has contacted OSHPD and has received assurances that the
3tate would aake any necessary payments if LGI's financial
difficulties continue.
Background.
Lytton Gardens, Inc. (LeI) is a California nonprofit public benefit
corporation .established in Kay 1980 by Community Housinq, Inc ..
(ClUj. CHI, also a nonprofit public benefit corporation, was
created in February 1970 by members of two Palo Alto churches for
the purpose of developing housinq for senior citizens with low
incomes.
Lytton Gardens III is a skilled nursing facility and convalescent
hospital built by CHI on Webster Street~ In October 1981, the City
issued City of Palo Alto Insured Health Facility Revenue Bonds of
$9.6 million to acquire, construct and equip Lytton III.
CMR:385:93
•
In october 1982 and again in December 1986, the city advance
refunded the bonds4 The last financinq ~as in the principal amount
of $13.4 million and had a $1.2 million reserve.
The bend. covenants call for interest-only payments to bondholder&
from 1987 through 1996; payment of the $13.4 million principal does
not begin until 19S7. Staff reported in August 1991 (CMR:387:91)
that the sea i-annual interest payaents to the holders of the !986
bonds have been made on a timely basis, but only because the
trustee used funds from the $1 ~ 2 mi Ilion bond reserve account.
DUring the period trom December 1989 through April 1991, the
corporation waS unable to make full deposits toward the interest
only payments, thU2 requiring the use of the reserve 4 By August
1991 t-~e reserve had been reduced by two-thirds~ to $427,000.
In CMR:504:91 dated November 14, 1991, staff transmitted informa
tion from the audited financial stateDents for LGI for fiscal years
endinq March 31, 1990 and 19914 The financial statements showed
that, throuqh the date of the audit, LGI continued to have an
operating-deficit of approxiDUltely $0.5 million, and that the
aCCUlll.\,;;lw.-t~-d tuna a.eiicit had increased by 14 percent, from $3.8
million to $444 million~
Use of ' •• _rve for JUDe l' Bop4bo14.r paYMents
The trustee for the Lytton III bonds, Bank of America, has informed
the city that the June 15 debt service payment was made to
bondholders utilizinq the. reserve, 'Which has been reduced to
$278,500 froa the original $142 million. LeI had scheduled monthly
deposits to the trustee of $79,448 in order to fund the semi-annual
interest payments and slowly replenish the reserve. However,
Lytton has been unable to J:lue the monthly deposits. The reserve
ia essentltllily depleted, since the oec~mber 15, 1993 debt service
payment of $443,290 would e.xceed the amount remaining in the
reserve should L~I again be unable to meet its obliga-tions4
UI/s fiscal year ends H2'.rch 31~ Staff has not yet ;oeceived the
audited financial state:ne.nts from LeI, but expects the financial
statements to continue to show a siqnificant operatinq deficit~
arric. of S\at __ i4a x.altb Plapnipg an4 DevelopaeDt
statf has been in contact 'With OSHPD, the state office whiCh
insured the bonds~ Dale Flournoy, construction Financinq Supervi
sor of OSHPD, informed staff that his office and LGI are beqinning
to meet to explore alternatives~ including business operations and
ways to increase revenues and reduce expenditures. Mr. Flournoy
assured staff that OSHPD would, if necassary, deposit funds
required to make the scheduled paj~ents to the bondholders~ They
have agreed to xeep the city informed of progress in the discus
sions.
CMR'385'93 2
, ,
" "
As at March 31. 1993, the total bonds insured by the OSHPD had a
principel amount of $1.994 billion. OSHPC .~int&ins a $111 million
reserve to cov~r their insured bonds. While there are sufficient
funds to pay ott the Lytton bonds in a worst case scenario, a loss
of $13 aillion on a reserve of $111 million would be substantial
and OSHPD would prefer another solution.
COMlu'i1m
It appears at this time that the OSilPD will step in to make the
De~r debt service payment for LeI, should they continue to
experience siqnificant financial problems. This means that the
bonds will not be called, althouqh they remain in technical default
because of the drawdown in the reserve. Up to this point, Palo
Alto's credit rating bas not been affected by the problems with the
Lytton Garden bonds. However, since staff anticipates qoinq out
for bonds on the California Avenue parking structure in the latter
part of 't.he year, questions may be raised by the ratinq aqencies as
to the status of the LGI bonds. Staff will continue to york with
OSXPD and will lceep Cowlcil informed of events as t.hey pr-oqre&&.
Respectfully submitted,
Related Staff Report.: CMR:387 91
CMR: 504 91
CMR: 233 93
CMR:385:9J 3