Deal or no deal?

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City appears to be in no rush to issue COPs to pay for USOC headquarters project

The City of Colorado Springs has yet to market the debt instruments that will pay for its share of the cost of building new facilities for the U.S. Olympic Committee and the Olympic Training Center.

The city’s commitment, estimated to be $27.2 million, is to be paid for by issuing certificates of participation (COPs).

The city has delayed issuing the securities because of market conditions, according to Terri Velasquez, the budget and finance director.

“The market has had difficulties, although it’s a little closer (to normal conditions) than it has been,” she said. “But right now, investors are concentrating on Treasuries, and similar securities.”

But the city’s bond underwriters say that the COPs are saleable now.

Dan O’Connell of RBC Dain Rauscher, the city’s lead underwriter for the proposed issue, said that market conditions have improved substantially since early January.

“It’s not a great market, but at this time, the COPs are marketable within the parameters of the (council) resolution,” he said. “The market was frozen during December, and so much supply was built up that it wasn’t a good market to sell in. The city made a good decision to wait.”

O’Connell said that the city likely would insure the bonds, thereby boosting their rating, but increasing the cost of issuance.

Although O’Connell said he hopes to see an improving market, he stressed that future market conditions are difficult to predict.

“I wouldn’t want to be quoted as saying that (rates will go down),” he said, “It’s still an incredibly volatile market, but it’s much better than the end of 2008. We think that we may be able to do better than 6.25 percent — maybe 5 or 5.5.”

It’s not clear why the city has delayed issuing the COPs, and taking advantage of what might be a temporary window of opportunity.

Neither LandCo, the developer partnering with USOC and the city on the project, nor Assistant City Manager Mike Anderson, who has spearheaded the project since its inception, returned calls from the Business Journal.

Asked whether the delay in issuing the COPs might threaten the deal, Velasquez said only that, “We’re all dedicated to seeing the project through.”

Velazquez also denied that the city has, as a source told the Business Journal, assumed responsibility for paying the interest on the construction loan originally taken by LandCo.

“We haven’t made any of those payments,” she said.

She confirmed, however, that the city is in discussions with LandCo regarding the payments.

“We’re trying to work out something that’s fair,” she said. “The agreement called for us to sell the COPs at a certain time.”

But an individual with direct knowledge about the ongoing negotiations between the three entities, who asked not to be identified, said that the city will not issue the COPs until, “they’re certain that all of the parties to the deal can meet their obligations.”

City officials fear, he said, that the ongoing credit crisis might make it impossible for LandCo to perform as specified.

But he emphasized that “there are lots of people who are working very diligently to make sure this project succeeds. And I believe that all the difficulties will be resolved within a couple of weeks, and we’ll have a good announcement.”

Randy Purvis, the longest-tenured member of City Council, said that members haven’t discussed the USOC project for some time.

“I expect that we’ll have a presentation in the near future,” he said.

However, he declined to comment about whether the city was deferring action on the COPs because of concerns about LandCo.

Vice Mayor Larry Small said that the project might be delayed, but expressed confidence that things would come together in the near future.

“I expect that by April at the latest we’ll have those COPs issued, and everyone will be in a position to meet their obligations,” he said.

Small parried questions about LandCo, saying only that “there’s an agreement out there, and I expect that all of the three parties will perform according to the terms of the agreement.”

Councilmember Jan Martin also wouldn’t comment on the project.

“There are some things that we’ve discussed in closed session,” she said, “but I can’t talk about that.”

But another individual who is intimately acquainted with the deal’s progress, and also asked not to be identified, was less sanguine about its prospects.

“Look, LandCo can’t come up with the money for the athlete housing and the internal improvements at the OTC, and that’s the key to the deal for the USOC,” he said. “So, the USOC won’t sign the lease for the building (at 27 South Tejon), and the city’s not about to issue the COPs and be stuck with an empty building and $27 million in debt. So, that’s where things are.

“LandCo has made a mess of this. But I don’t think that the city is looking for a new developer. The original deal was based on very optimistic projections, and I don’t think anyone else in the (development) community would want to take it over. It was always just a pipe dream.”

G.E. Johnson Construction Co. is the general contractor for the Stratton Pointe-USOC headquarters project.

Company president Jim Johnson said the situation is dynamic.

“I wish they (LandCo) had asked for help earlier — a lot of people would have helped,” he said. “Nobody could have anticipated what would happen to the financial markets — and we all realize there’s nothing to be gained by wasting time now blaming one group or another.”

Johnson said that his company has been paid for its work so far through a loan Marshall arranged for Stratton Pointe before the USOC agreement. He said he did not know whether other contractors have been paid for their work on the 32,000-square-foot national governing body building near America the Beautiful Park.

What the stakeholders want to avoid, Johnson said, is losing the USOC to another city and, as a result, they are pulling together to make the deal work.

That said, however, he acknowledged that by requiring LandCo to meet its obligation to complete athlete housing on the Olympic Training Center campus before signing a lease at Stratton Pointe, the USOC is looking out, first and foremost, for its athletes.

“They also want an affirmation that, given the huge change in the financial markets, that LandCo can still perform,” he said.

Johnson said his company’s motivation for getting involved with the project included a combination of support for long-term downtown development and for an affiliation with the USOC.

“We just wanted to be part of it,” he said. “We’re all rolling with the punches — and we can continue to do so as long as we know the end is coming. Above all, we don’t want this effort to fail.”

Becky Hurley contributed to this story.