1. Call Meeting to Order
Ms. Barbara Barbour called the meeting to order at 1:10 pm.
2. Roll Call
Members Present
Scott Andrusis
Barbara Barbour, Chairperson
Cile Decker
William E. Keohane
Members Absent
None
Guests
Shari Fiveash, Executive Director of the South Windsor Chamber of Commerce
Matthew Galligan, Town Manager
Dan Marsh (by phone), National Development Council
Kari Olson, Murtha Cullina
David Panico, Robinson & Cole
3. Approval of Minutes of Previous Meeting
None
None
None
- Report of Executive Director
None
None
None
Connecticut Studios Discussion
Town Manager Matthew Galligan introduced Mr. Dan Marsh, on speakerphone, from the National Development Council. The NDC only works for municipalities, not developers. Mr. Marsh has over thirty years of experience in this field. Mr. Marsh gave an update on Connecticut Studios. The project has gone through several major iterations, but the concept has remained the same. The makeup of the funding sources has changed. The NDC has provided guidance to the Town and Connecticut Studios in order to produce a viable project. Until recently, the developers were falling short of resources that were up to the Town’s satisfaction. Within the past few weeks, Connecticut Studios has gained financial strength. A renewable energy production facility – a fuel cell project – will generate extra cash flow for Connecticut Studios.
The fuel cell project will provide Connecticut Studios with an up-front payment and injection of equity because this particular project is eligible for a renewable energy tax credit. The introduction of this component generates ongoing income for the developer that will help operate Connecticut Studios. This is important because it will help offset an interruption in functions, such as a strike or reduction in production credits.
The developer has secured financing from First Niagara Bank for the bridge lending which is needed in order to fund the project in anticipation of receiving the credits. The developer has also received a commitment to borrow $10 million from the same bank as part of the overall financing required for the project. The developer has also received a $5 million loan from the State of Connecticut Department of Economic and Community Development (DECD). Those funds, when combined with the equity from the sale of tax credits, provide enough capital to build two sound stages, related offices, the private improvements to the site, and allow the fuel cell facility to be constructed.
The developer is nearing the end of the process of raising capital. The last thing the Town is waiting for is the approval of a Power Purchase Agreement. This contract will bond the electricity generated from the fuel cell. The financing plan is near completion. Without the Power Purchase Agreement, the developer cannot move forward. With the Power Purchase Agreement, everyone can move forward with the public improvements which will be supported through payments made through the fuel cell project.
Town Manager Galligan gave his update on the Power Purchase Agreement. It is his understanding from Tom Ritter that as of Friday, May 10, everything is going well. Mr. Ritter was hoping that DECD have an agreement with minor changes. A legal opinion was going to be drawn up from Mr. Ritter’s firm that will be going to DECD. Mr. Ritter is confident that this is a done deal, and that it is just a matter of time before everything is signed.
Town Manager Galligan also said that the possible power company that will sign off on the Power Purchase Agreement wants assurance from the State that if they move forward, they will not be sitting in PURA. The fuel cell project is a separate issue. His understanding is that the agreement has been negotiated and is sitting on someone’s desk.
Mr. David Panico asked Mr. Marsh about the current improvements on the property. Mr. Marsh said that some of the improvements are on the other parcel, but that NDC has not received the final description of the proposed public improvements. Town Manager Galligan asked Mr. Marsh to keep an eye on the public improvements, as he was concerned about the hotel parking. Mr. Marsh said there are certain budget numbers presented in a conceptual format that the NDC does not agree with and will be revising. For example, the value of the easement should come down. Mr. Panico asked if the plan was still to do a lease financing. Town Manager Galligan said it would be a lease through NDC. Mr. Marsh said the lease would be about a 4% interest rate. The taxes paid by the fuel cell power
generating project will cover about 80% anticipated debt service on the bond.
Mr. William Keohane asked who will own the fuel cell production facility. Mr. Marsh said it will be owned by Connecticut Studios, the corporate entity that will own the rest of the real estate. Connecticut Studios, LLC will enter into a long-term lease with a single-purpose LLC which will be Connecticut Studios Fuel Cell, LLC. By virtue of that long-term lease, the tax credits can be used by the single member LLC and removed for bankruptcy protection from the parent company. Mr. Keohane asked where the money will come from to build the fuel cell facility. Mr. Marsh said the money comes from an insurance company or a bank. Connecticut Studios has preliminary term sheets from both. The loan is made to the single asset member, not Connecticut Studios. The interesting thing about
the project is that normally the equity from the sale of renewable tax credits will go to support the renewable energy project. Connecticut Studios has structured it in a very unique way that has a Power Purchase Agreement. This allows them to service almost $30 million in debt and have available cash flow left over and be able to use the $8 million net to invest into the parent company. Mr. Marsh said this unique structure works well because the power utility is paying a market rate for the kilowatts of energy produced. This limits the amount of money that Connecticut Studios has to borrow and gives them financial strength.
Mr. Keohane asked if the $30 million is the cost of the whole project. Town Manager Galligan said the $30 million is just for the fuel cell. The actual cost for the studios is approximately $59 million.
Town Manager Galligan said that Albuquerque was a concern. There was a big development plan, and the Studio was trying to prove they could make movies out of Hollywood. They did not get any incentives. Those went to the developer. The Studio spent $77 million to build the actual movie studio, and they got nothing in return. The economy went bad, there were no homes from the developer, and there was no infrastructure. Right afterwards, there were strikes. The Studio restructured their debt, and now things are picking up. Connecticut Studios does not want a large amount of debt, and neither does the Town. The other concern was the threat of film credits being taken away in the future. Mr. Marsh said that Connecticut Studios will have a maximum of $15 million in debt,
$5 million which is from the State of Connecticut. Of the remaining $10 million, $5 million is a cash deposit against default for the bank. There is a maximum of $10 million of private sector debt on a $55 to $58 million studio. This gives Connecticut Studios tremendous flexibility to sustain operations even through downturns or possible tax law changes.
Town Manager Galligan emphasized that the studio in Albuquerque and Connecticut Studios are not connected in any way. Mr. Scott Andrusis asked Mr. Marsh who will own the single member LLC mentioned previously. Mr. Marsh said that Connecticut Studios will be the member of that LLC, but it will also admit another private member in the form of the equity purchaser of the renewable energy tax credit. It will start out as a single member LLC where Connecticut Studios is the sole member, but once the syndication occurs, the company that acquires the ITC will become a member of that corporation until that is unwound. Eventually, the whole facility will revert back to Connecticut Studios at some point in the future. Mr. Andrusis asked who the underlying credit would be for the bonding. Mr. Marsh
said it would be the Town of South Windsor through a lease.
Ms. Barbara Barbour said that all of the Agency’s negotiations have been with Connecticut Studios. She asked about the single member LLC. Mr. Marsh said that they are still negotiating with the two principals of Connecticut Studios and the developer of the overall real estate. The single member LLC that is create to lease the actual fuel cell improvements is going to be comprised initially of Connecticut Studios, LLC as a member of Connecticut Studios Fuel Cell, LLC. Then, it will change slightly once the credits are sold and a member is admitted into that LLC. The Town is still dealing with Connecticut Studios, and they are primary entity that is controlling the primary transaction. They just happen to be syndicating the fuel cell project and need to separate it from the real
estate project.
Ms. Barbour asked what would happen if the single member LLC has an argument with Connecticut Studios, LLC. Mr. Marsh said it is really the same entity structured with the ability to put money back into the Connecticut Studios main project and also raise capital through the sale of credits. The managing members of each LLC are the same people. Everyone on the Town’s side will be monitoring the finances of Connecticut Studios closely.
Town Manager Galligan said that everyone is worried about building permits, but that is not important to him. He would like to see an agreement regarding the public improvements. Mr. Panico said there will be a developer agreement, and when the bonds are issued, the money goes into an account. In order for Connecticut Studios to draw the money out of the account, they have to get an engineer from the Town to sign off on it.
Mr. Andrusis asked for clarification on the cash flow from the fuel cell. Mr. Marsh agreed that the cash flow will be sufficient to pay off the bonding and the $30 million note. Mr. Andrusis asked if Seminole Bank is still involved in the transactions. Mr. Marsh said that Seminole Bank has issued a commitment letter, but he is not certain if Connecticut Studios will be going with Seminole Bank. Before the NDC signs off on anything, they will have to see the accepted commitments from both the equity purchasers and all of the lenders. The only commitments in final form as of now are from First Niagara and the State of Connecticut. Before the NDC issues their opinion to Town Manager Galligan and the Town Council, they need to see the final documents with the appropriate terms and the amount
of financing.
Mr. Andrusis asked where the $5 million will come from with regard to First Niagara. Mr. Marsh said it is coming from the proceeds of the financing of the fuel cell on the Studio. Part of the $8 million coming from the sale of the tax credits is going into an investment account for mortgage collateral. Mr. Keohane asked if there are other renewable energy incentives besides the 30% Federal tax credit. Mr. Marsh said they are just relying upon the Federal tax credit. Mr. Keohane asked if they have looked at solar power. Town Manager Galligan said that originally they wanted to use solar power and worked out a plan under the former governor. Governor Malloy prefers to use fuel cells, so Connecticut Studios had to construct a new plan with fuel cells.
Mr. Andrusis asked where the money will come from to purchase the Charbonneau property. Town Manager Galligan said it will come from the $6 million that has been put up from another property that a principal owns. Mr. Marsh said the majority of the funding will not be released until the PPA clears the State regulatory hurdles. He said that Connecticut’s tax structure is probably the best and most competitive for film production companies right now. The Agency discussed the PPA negotiations. Town Manager Galligan said that if there was ever an emergency, Connecticut Studios has been designated an emergency shelter for that area.
Ms. Cile Decker thanked Mr. Marsh for answering all of the questions so far. She asked if there would be another extension that would have to take place. Mr. Marsh said that the need for another extension is predicated upon the speed at which the PPA is signed and the State Regulatory Commission clears it. Aside from having those two steps taken care of, not much can be done. If the PPA is signed, what the principals have said is that the existing lien will be cleared, and full building permits will be pulled. Then there will be enough money to start working on the site. They are hopeful that will occur prior to the latest extension granted by the Town Council. However, if the PPA is not signed before then, everyone is still in a holding pattern. Mr. Marsh said he hoped there
was no need for another extension.
Mr. Andrusis said he did not understand the First Niagara financing letter because it requires Connecticut Studios to be producing energy to a certain level. Mr. Marsh said they are providing takeout financing. The actual financing will be managed by the principals to get the fuel cell up and running.
Mr. Andrusis asked Town Manager Galligan about the public and private infrastructure costs. Town Manager Galligan said that he has two disagreements about what is public, and that David Panico is working on that at the moment.
Mr. Panico asked if there is a budget or site plans that he can start reviewing. Mr. Marsh said the site plan is still a very rough draft, and he would need a better version. There is a budget that Mr. Panico can review. Mr. Panico asked about zoning approvals. Town Manager Galligan and Ms. Kari Olson both confirmed they had zoning and site plan approvals.
Ms. Barbour asked if the length of time since the project started would mean that the Town would have to go back to original entities that provided commitment letters and such. Mr. Marsh said that most of the documents have been replaced, and there are new participating entities. Almost everything is in place. Ms. Olson said that many permits expire, and it would be worth reviewing the issued permits. Mr. Panico said that the redevelopment plan may need to be updated. Town Manager Galligan said the original redevelopment plan included all 440 acres.
Mr. Andrusis asked if the project is completed but does not succeed, what would happen with the fuel cell. Mr. Marsh said that the fuel cell will stay intact and continue to produce electricity and receive income, and the taxes from the fuel cell project and the gas line connections will pay the majority of the debt service on the bonds. The appraisal looked at other uses for the land and buildings in the worst case scenario. The buildings could be used as storage and commercial/industrial buildings.
Ms. Barbour asked if there were any concerns with the project. Mr. Marsh said he cannot think of anything of concern at this time. Mr. Keohane asked about the extensions being approved by the Town Council instead of the Redevelopment Agency. Town Manager Galligan said that Mr. Marsh could not answer that question, but the two attorneys were at the meeting to answer it.
Mr. Scott Andrusis made a motion to go into Executive Session at 2:00 p.m. Ms. Barbara Barbour seconded the motion; and approved unanimously. The Agency came out of Executive Session at 3:38 p.m.
Resolution Extending the Reverter Clause
BE IT RESOLVED that the Town of South Windsor and the South Windsor Redevelopment Agency, acting through their duly authorized officials, extend to June 30, 2013, the reverter deadline set forth in the fourth paragraph of a certain Statutory Form Quit Claim Deed to Connecticut Studios, LLC, dated October 26, 2009, and recorded at Vol. 2077, Page 183-184 on the land records of the Town of South Windsor, Connecticut, and as said reverter deadline has previously been extended; and
BE IT FURTHER RESOLVED that the Town Manager is authorized and directed to execute this date a Fourth Amendment to Quit Claim Deed in the form presented to the Town Council this date.
The Agency made the following modifications to the Resolution.
BE IT RESOLVED that the South Windsor Redevelopment Agency, acting through its duly authorized officials, hereby ratifies the decisions of the Town Council extending the reverter deadline set forth in the fourth paragraph of a certain Statutory Form Quit Claim Deed to Connecticut Studios, LLC, dated October 26, 2009 and recorded at Vol. 2077, Page 183-184 on the land records of the Town of South Windsor, Connecticut (as amended in successive deeds), which extensions currently expire on June 30, 2013.
Mr. William Keohane made a motion to approve the modified resolution. Mr. Scott Andrusis seconded the motion; and approved unanimously.
10. Adjournment
Ms. Barbara Barbour made a motion to adjourn at 3:38 pm; Mr. Scott Andrusis seconded the motion; and approved unanimously.
Respectfully submitted,
_____________________
Ashley Summers
Recording Secretary
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