Schools will serve as collateral for Phase I loan

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Grayson plans to use the two schools included in Phase I of the long-term facilities improvement plan as collateral for an extended loan.

By Ben Bomberger, Reporter

INDEPENDENCE — A motion to use the two schools included in Phase I of Grayson’s long-term facilities improvement plan as collateral for an extended loan was nearly defeated after two board members disagreed with the idea.
Dennis Howard, senior vice president of SunTrust Bank, attended the Grayson School Board meeting last Monday night to explain the plan.
The county originally borrowed $16.3 million for Phase I of the plan, which includes the new Grayson Highlands School in the western end of the county and renovations and additions to Fries Middle School.
While the original plan was to place the money in an interest-bearing savings account and use the interest earned to pay the interest owed on the loan, rates tanked and the county earned little on the money.
To make the payments, the county began drawing money from the $16.3 needed for the construction projects.
This — mixed with a project that went over the original budget, and the lack of state funded literary loans — forced the county to seek an alternative to their temporary financing.
After asking SunTrust to extend the terms of the loan and increase the amount to $18.3 million, the bank came back asking for collateral.
Howard explained that, as the economy has changed, so have standards on how a bank does lending.
While the original loan was done on a “moral obligation” to repay the debt, the bank has now asked for that and collateral to hold the county responsible.
Howard said the county’s interest rate is actually going down to 2.96 percent and the payment plan was changed to semi-annual.
Options that would be suitable for collateral would be the courthouse or some of the school’s buildings.
“It seemed logical to suggest the school buildings,” Howard explained.
He added that the structure is not like a mortgage loan. If the county defaulted on the loan, the schools would not be liquidated as in a normal foreclosure.
School Board Vice Chairman Shannon Holdaway had a few questions before making a motion.
He asked if half the difference between the original $16.3 and the requested increased amount of $18.3 was the county using the loan money to make the payments.
Howard said that was his understanding and, when asked what the other half was, he explained that it was additional money needed to complete the projects, such as funding for the turning lanes.
Schools Superintendent Dr. Elizabeth Thomas told the board that it is common practice to use school buildings as collateral.
Howard agreed and noted that the county would likely have had to do that when it obtained literary loans.
Board Member Hobert Bailey asked if the $18.3 million was based on the once estimated $17.9 million to finish Phase I or the latest projection of $17.1 million.
Thomas said it was her assumption that the $17.1 million was used to determine the final amount the county needed to borrow.
Thomas added that the documents clearly state that the county will be responsible for paying the loan back to SunTrust and that the school board will not be responsible for making any payments of interest or principal.
Holdaway asked for a summarization of what happened if the county defaulted on the loan.
Howard said because it is a “lease-lease back” agreement, the occupancy or possession may change, but not the ownership.
Holdaway then asked if the language included wording that would appropriate the monies needed for the turning lane.
Thomas said if approved, the money would be appropriated to complete the projects, which would include the turning lane at Grayson Highlands.
With no further discussion, Holdaway made a motion to approve using the schools as collateral; which was seconded by Bailey.
When it came time to vote, Holdaway voted against his own motion, as did fellow board member Gary Burris.
However, Chairman Misty Cassell, Bailey and Board Member Wynn Combs all voted in favor and the motion passed.