2000-06-07 LOC Request
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Mzchael C. Coun.
Andrew J. MacArthur
Marcus W. M,Uer
OAL>v lu:m.st'Jd UI nbnots
COURl & MACARffiUR
Attorneys at Law
705 Central Avenue East
PO Box 369
St MIChael, MN 55376-0369
(763) 497-1930
(763) 497-2599 (FAX)
counandmacarthur@pobox com
June 7, 2000
Mr Rick LewondowskI
Edma Development Corporation
700 Industry 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 requITes that the letter of credIt put
forth by the Developer of Albert VIlla's be approved by the City Attorney as to form and
Issumg bank (see paragraph 5A of the Developer's Agreement) AlbertvIlle requITes a
letter of credit so that m the event the Developer defaults on any of Its obhgatIons 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 fmancmg mstItutlOn wmch IS able to demonstrate that It has a strong hkehhood of
bemg able to honor the letter of credit m the event of adverse econOmIC CITcumstances
Banks wmch meet Federal or State bankIng regulations are generally conSidered strong
enough and relIable enough to meet letter of credit oblIgabons m the event of a severe
econOmIC downturn
Unfortunately, the finanCial mstItutIon you have chosen to prOVIde the City With a
letter of credit m the amount of $530,600 IS not a bank, not requITed to meet the fmanclal
requITements of banks under either state or federal law, nor has thIS fmancIal msbtutIon
been m busmess for more than a year Further, as a hmIted habhlty company, the City
would be unable to turn to any entity (such as the FDIC or other such msurance enbty) m
the event of a default on the letter of credIt
In consldenng these Issues, I spoke WIth Bob Machacek, the preSident of Lakeland
Const Fmance regardmg the assets of thIs fmancIal company After dlscussmg tills
matter WIth the preSident, and after reVlewmg the company's balance sheet, It IS apparent
,
Mr RIck Lewondowslo
June 7,2000
Page 2
e
that the vast maJonty of tins company's assets wmch would be used to meet the letter of
credIt oblIgatIon are m the form of notes receIvable from Its owners In other words, tins
company IS relymg on the promIses of mdIVIdual mvestors to mject cash as needed to
meet the company's fmancIal oblIgatIons, mcludmg letter of credIt oblIgatIons
Unfortunately, tins 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 requrres
In lIght of tins, I am requestIng that you prOVIde the CIty WIth a letter of credit
from a bank subject to the usual regulatIons and reqwrements of the federal government,
or m the alternatIve, fund an escrow account m the amount of $530,600 wmch the CIty
can draw on m the same manner as a letter of credIt (1 e With the presentatIon of a letter
confmmng default by the Developer) TIns account ca.ll pam mterest WhlCI,. would be
credIted to the Developer, and, WIth the approval of the CIty as work progresses, a
slgmficant portIon of the funds m the account can be penodlcally drawn down to pay the
contractor and other costs of mstallmg the MumCIpal Improvements and On- and Off-SIte
Improvements requIred of the Developer's Agreement (the Developer's Agreement
requrres that 10% of the cost of the MumCIpal Improvements be retamed m the letter of
credIt as a warranty, and a small portIon of the funds would need to remam untIl
completIOn of all On- and Off-SIte Improvements) If the latter approach IS taken, the
account would have to be rrrevocable and free of any mcumbrances m the event of the
bankruptcy or other fmancIal problems wmch may befall the Developer or the proVIder of
the funds
Please let me know how you would hke to proceed m tins matter Thank you
Smcerely,
-{Yl1 cha..eL C.
MIchael C Conn
Couri & MacArthur Law Office