ACTION REQUESTED:
Title
Communication from the City Manager with a Request to APPROVE a Loan from the City’s REVOLVING LOAN FUND to CENTRE STATE INTERNATIONAL TRUCKS and to Authorize the City Manager to Execute the Necessary Documents.
Body
BACKGROUND: Centre State International Trucks, Inc. (Centre State) is seeking financing of $410,000 to address cash flow challenges brought about by delayed payments from one of their largest accounts, the Illinois Department of Transportation (IDOT). Currently, IDOT receivables equal approximately $170,000. An additional $240,000 is expected for services to be rendered up to the end of March 2016. Rather than terminate their contract with IDOT and possibly lay off employees, Centre State plans to continue servicing the account and needs $410,000 in funds to cover the anticipated cash flow deficit.
Company Background
Centre State International Trucks, Inc. (Centre State) is an S-Corporation that has been locally owned and operated by Gary Prepejchal in Peoria since 1979 (36 years). The company is a medium and heavy duty truck dealership and repair shop that specializes in new and used truck sales, parts sales, maintenance/repair, and leasing/rental. Centre State has two locations: one in Peoria at 3313 SW Washington Street and one in Iowa. The company employs 60 employees, with 36 full-time employees working at the main facility in Peoria, including an executive management team, administrative assistants, and skilled/technical union laborers.
Centre State has an exclusivity agreement with International Truck and Engine Group to only sell their line-up of new medium and heavy duty truck products. A good portion of Centre State's business operations is with the Illinois Department of Transportation in repairing and maintaining IDOT's District 4 vehicles. In addition to IDOT, other key accounts include Airland Transportation, Ryder, Penske, Sherman’s, Ezra Rumbold Farms, Frito Lay, Pepsi, Behr Iron and Metal, and Burklund Distributors.
Financing Structure and Terms
Centre State is seeking working capital funding from various sources that include the County, City of Peoria and Centre State's owner. The following is a breakdown of the project funding:
|
SOURCE |
Amount |
% |
|
Company Equity |
$ 41,000 |
10% |
|
Owner Loan |
$ 83,700 |
20% |
|
City of Peoria Loan |
$ 135,300 |
33% |
|
Peoria County Loan |
$ 150,000 |
37% |
|
TOTAL |
$ 410,000 |
100% |
The loan request to the City is for a short term (1 year) working capital loan of $135,300 at 4% interest, with payments due as the State of Illinois pays Centre State.
This loan will be secured with:
a) A blanket UCC filing on Centre State’s personal property consisting of vehicles, machinery and equipment, furniture and fixtures, and inventory
b) An assignment of all receivables.
c) A corporate and personal guarantee.
The valuation of Centre State’s personal property more than adequately covers the City and County loans of $285,300. Current receivables are nearly $700,000 as of October 2015. In addition, loan covenants will ensure that any IDOT payments made to Centre State will be forwarded to the City and County, on a pro rata basis, in full prior to paying any other debt.
The Peoria County Executive Board unanimously approved its RLF loan of $150,000 to Centre State at its November 3, 2015 meeting. The full County Board will vote on the loan at its November 12, 2015 meeting.
RLF Program Background
The City’s Revolving Loan (RLF) Fund Program was initially capitalized in 1988 with $769,232 by an EDA grant of $500,000 and matching funds from the City of $269,232. As of September 2015 the capital base has grown to $1.2 million through net income from interest ($864,129.18) minus losses ($427.145.67). In total the program has loaned over $3.8 million to 43 different projects in the industrial, commercial, and service industries and has assisted with the creation/attraction of 1,947 jobs. City loans of $3.8 million were leveraged with $45.5 million of other funds and has resulted in an overall investment of $49.3 million.
On average, RLF projects represent an investment of $1.15 million, 45 jobs, and a City loan of $86,000. For every $1.00 of RLF proceeds loaned by the City an additional $12 was leveraged. The last loan the City made was in August of 2011.
FINANCIAL IMPACT: Currently there is $962,243.35 available for new loans. Plans are underway to revamp the loan program and make capital more accessible.
NEIGHBORHOOD CONCERNS: Not applicable.
IMPACT IF APPROVED: Staff will prepare loan documents. Centre State will be able to maintain current operations for an additional year.
IMPACT IF DENIED: Centre State will need to pursue other financing options to maintain the IDOT account or discontinue service with IDOT. Alternative financing may not be as favorable or flexible which would affect Centre States ability to adapt to other economic or financial challenges that may emerge. Discontinuing service to IDOT would greatly impact Centre State’s financial position and may result in the loss of jobs. In addition, IDOT's District 4 fleet ability to maintain roads would be hampered.
ALTERNATIVES: None.
EEO CERTIFICATION NUMBER: Not applicable.
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2014 - 2029 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Grow Peoria: Businesses, Jobs, and Population
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Grow employers and jobs.
DEPARTMENT: City Manager's Office