Report to:
General Committee Report
Date:
SUBJECT: Restructuring of
PREPARED BY: Mark Visser, Manager of Financial Strategy & Investments
RECOMMENDATION:
1) THAT the outstanding loan to the Markham Little Theatre (MLT) be restructured, to be repaid in equal annual payments of $8,627.67 over 25 years, beginning October 1, 2009.
2) And that Staff review this agreement in 5 years time
3) And that Staff be authorized and directed to do all things necessary to give effect to this resolution.
EXECUTIVE SUMMARY:
Not applicable
PURPOSE:
In January
2009, MLT made a formal request to the Town to restructure the loan in order to
reduce expected operating losses. This
report analyses the financial impact to the Town of this request.
BACKGROUND:
For the past 40 years, MLT has been proud
to present community theatre to the residents of the Town of
The total renovation cost of “Backstage”
was just over $600,000. Partial funding
for this endeavor came from private sources (approximately $250,000) and the Trillium
Foundation ($100,000). The remaining
funding of $258,830 came in the form of an interest free loan from the Town
which Council approved in two parts ($200,000 in 2003 and $58,830 in 2005).
The final
details of the loan were as follows:
Principal:
$258,830
Term: 18
years
Frequency
of Payments: Annual
First
payment Date:
Annual
Payment amount: $14,379.44
Furthermore,
MLT signed a 25 year lease agreement that commenced on
MLT have
made all the scheduled payments and to date has repaid $43,138.32 of the
$258,830. Therefore, $215,691.68 of the
loan is still outstanding.
OPTIONS/ DISCUSSION:
In January
2009, MLT made a formal request to the Town to restructure the loan in order to
reduce expected operating losses. These
losses are being caused by a drop in attendance levels coupled with an increase
in production expenses. MLT are taking
measures to attempt to fix their financial situation with refocused
marketing. MLT estimate their expected
losses at approximately $8,000 per year.
The
proposal set forth by MLT is to repay the current balance of the loan over the
next 25 years (essentially increasing the term of the loan by 10 years). This would result in a decrease of the annual
payment to the Town from $14,379.44 to $8,627.67.
The Town
has requested a few concessions in light of this request:
1. Paying interest at Prime minus 1.5 on the outstanding balance
2. Increasing the rent from $2 per year (as stipulated in a Lease Agreement signed in 2005) to $2,500 per year
3. Consider reopening the loan agreement in 5 years if the financial circumstances change for the Markham Little Theatre
MLT has responded to these requests saying that concessions 1 and 2 would just exacerbate their financial situation but are indeed willing to reopen the agreement in 5 years if circumstances change for Markham Little Theatre.
FINANCIAL CONSIDERATIONS AND TEMPLATE: (external link)
Although the Town will still receive the full repayment of the loan, the Town would forego approximately $70,000 in interest revenue over the 25 year period [the equivalent of $26,000 in 2009 dollars].
As “Backstage” has been modified and designed for use by MLT, there are few, if any, alternative uses for the facility. Furthermore, over half the funding came from private sources and a Trillium grant, To attempt to do something different with the facility at this point may prove to be difficult.
Therefore, Town staff recommend restructuring the loan as proposed by MLT. By spreading out payments over the course of another 10 years, MLT will be able to reduce expected operating losses and ensure that they will be able to continue to provide quality entertainment to the community.
ENVIRONMENTAL CONSIDERATIONS:
Not Applicable
ACCESSIBILITY CONSIDERATIONS:
Not Applicable
ENGAGE 21ST CONSIDERATIONS:
Not Applicable
BUSINESS UNITS CONSULTED AND AFFECTED:
Not Applicable
RECOMMENDED
BY: ________________________ ________________________
Barb Cribbett, Treasurer Andy Taylor, Commissioner,
Corporate Services