2000-06-07 LOC
Michael C. Couti.
Andrew J. MacAnhur
Marcus W. Miller
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COURl & MACARffiUR
Attorneys at Law
705 Central Avenue Earr
PO Box 369
St. Michael, MN 55376-0369
(763) 497-1930
(763) 497-2599 (FAX)
couriandmacarthur@pobox.com
June 7, 2000
Mr. Rick Lewondowski
Edina Development Corporation
700 IndustIy Avenue
Anoka, MN 55303
Re: City of Albertville; Albert Villa's Development; Letter of Credit.
Dear Mr. Lewondowski:
The City of Albertville Developer's Agreement requires that the letter of credit put
forth by the Developer of Albert Villa's be approved by the City Attorney as to form and
issuing bank (see paragraph 5A of the Developer's Agreement). Albertville requires a
letter of credit so that in the event the Developer defaults on any of its obligations under
the Developer's Agreement, the City can quickly draw on the letter of credit and remedy
the default.
It is of the utmost concern to the City that the letter of credit be issued by a bank
or fmancing institution which is able to demonstrate that it has a strong likelihood of
being able to honor the letter of credit in the event of adverse economic circumstances.
Banks which meet Federal or State banking regulations are generally considered strong
enough and reliable enough to meet letter of credit obligations in the event of a severe
economic downturn.
Unfortunately, the financial institution you have chosen to provide the City with a
letter of credit in the amount of $530,600 is not a bank, not required to meet the fmancial
requirements of banks under either state or federal law, nor has this fmancial institution
been in business for more than a year. Further, as a limited liablilty company, the City
would be unable to turn to any entity (such as the FDIC or other such insurance entity) in
the event of a default on the letter of credit.
In considering these issues, I spoke with Bob Machacek, the president of Lakeland
Const. Finance regarding the assets of this fmancial company. After discussing this
matter with the president, and after reviewing the company's balance sheet, it is apparent
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Mr. Rick Lewondowsla
June 7, 2000
Page 2
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that the vast majority of this company's assets which would be used to meet the letter of
credit obligation are in the form of notes receivable from its owners. In other words, this
company is relying on the promises of individual investors to inject cash as needed to
meet the company's fmancial obligations, including letter of credit obligations.
Unfortunately, this is not acceptable to the City of Albertville for an obligation as large as
the $530,600 letter of credit the Albert Villa's development requires.
In light of this, I am requesting that you provide the City with a letter of credit
from a bank subject to the usual regulations and requirements of the federal government,
or in the alternative, fund an escrow account in the amount of $530,600 which the City
can draw on in the same manner as a letter of credit (i.e. with the presentation of a letter
confirming default by the Developer). This account can earn interest whicQ.wou,ld.be
credited to the Developer, and, with the approval of the City as work progresses, a
significant portion of the funds in the account can be periodically drawn down to pay the
contractor and other costs of installing the Municipal Improvements and On- and Off-site
improvements required of the Developer's Agreement (the Developer's Agreement
requires that 10% of the cost of the Municipal Improvements be retained in the letter of
credit as a warranty, and a small portion of the funds would need to remain until
completion of all On- and Off-site improvements). If the latter approach is taken, the
account would have to be irrevocable and free of any incumbrances in the event of the
bankruptcy or other fmancial problems which may befall the Developer or the provider of
the funds.
Please let me know how you would like to proceed in this matter. Thank you.
Sincerely,
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Michael C. Couri
Couri & MacArthur Law Office