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2024 12 11 CC Minutes Sp MtgCALL TO ORDER CITY COUNCIL MINUTES SPECIAL MEE WEDNESDAY, DECEMBER 11, 2024 A special meeting of the La Quinta City Council was called to order at 9:00 a.m. by Mayor Evans. PRESENT: Councilmembers Fitzpatrick, McGarrey (joined the meeting at 9:06 a.m.), Pena, Sanchez, and Mayor Evans ABSENT: None PLEDGE OF ALLEGIANCE Councilmember Sanchez led the audience in the Pledge of Allegiance. PUBLIC COMMENT ON MATTERS NOT ON THE AGENDA PUBLIC SPEAKER: Philip Bettencourt, La Quinta — congratulated newly appointed Mayor Pro Tem McGarrey; thanked Council for their attendance at the Rancho La Quinta Homeowners Association (HOA) Thanksgiving Day Ceremony for the U.S. Marine Corp; and said he looks forward to attending the Imperial Irrigation District Coachella Valley Energy Commission special meeting scheduled for December 12, 2024, at 3 p.m., in his capacity as the appointed at -large Cities Commissioner, to discuss the possible formation of a Coachella Valley Power Agency Joint Powers Authority. CONFIRMATION OF AGENDA — Confirmed CLOSED SESSION 1. CONFERENCE WITH LEGAL COUNSEL — EXISTING LITIGATION; PURSUANT TO PARAGRAPH (1) OF SUBDIVISION (d) OF GOVERNMENT CODE SECTION 54956.9; CASES NAMES AND NUMBERS — MULTIPLE (listed below, all in U.S. Bankruptcy Court, District of Delaware) CASE NAME: CASE NUMBER SilverRock Development Company, LLC 24-11647 SilverRock Lifestyle Residences, LLC 24-11648 SilverRock Lodging, LLC 24-11650 SilverRock Luxury Residences, LLC 24-11652 SilverRock Phase I, LLC 24-11654 RGC PA 789, LLC 24-11657 CITY COUNCIL MINUTES SPECIAL MEETING Page 1 of 6 DECEMBER 11, 2024 COUNCIL RECESSED THE OPEN SESSION PORTION OF THE MEETING AND MOVED INTO CLOSED SESSION AT 9:03 A.M. MAYOR EVANS RECONVENED THE OPEN SESSION PORTION OF THE CITY COUNCIL MEETING AT 9:55 A.M. WITH COUNCILMEMBERS FITZPATRICK, PENA, AND SANCHEZ CITY ATTORNEY IHRKE REPORTED THAT MAYOR PRO TEM McGARREY JOINED THE MEETING AT 9:06 A.M. AND LEFT THE MEETING AT 9:48 A.M. REPORT ON ACTION(S) TAKEN IN CLOSED SESSION: City Attorney Ihrke said Council received a report from Special Counsel, the City Manager, and the City Attorney for the existing litigation in the U.S. Bankruptcy Court identified in Closed Session Item No. 1, and reported the following in accordance with Government Code section 54957.1 (Brown Act). MOTION — a motion was made and seconded by Councilmembers Fitzpatrick/Pena to approve that certain Term Sheet for Debtor -In -Possession (DIP) Financing with attachments thereto that include a Memorandum of Understanding (MOU) and collectively referred to as the "Term Sheet," and authorized the City Manager to execute the Term Sheet on behalf of the City. Motion passed unanimously. Prior to summarizing the substantive provisions of the Term Sheet, City Attorney Ihrke provided the following update on the bankruptcy case of SilverRock Development Company, LLC and its affiliates: On August 5, 2024, SilverRock Development Company, LLC and its affiliates, collectively referred to as "SDC," voluntarily petitioned for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Delaware; and per Council's direction and approval, the City retained Special Counsel who has continuously been working with the City Manager and City Attorney throughout these proceedings. Mr. Ihrke said the following occurred prior to today: • The U.S. Bankruptcy Court entered into the record a Final Order approving the appointment of the current Chief Restructuring Officer (CRO), Doug Wilson Companies, who is an independent supervisor, and administers and oversees the management of the debtors' estate and proposed reorganization plan. The City Manager, City Attorney, and the Special Counsel have been continuously working with the CRO and its counsel as the bankruptcy case has been proceeding. • SilverRock Development Company and its affiliates have now substituted a former Judge for the U.S. Bankruptcy Court in Delaware, Mr. Christopher Sontchi, to serve as the controlling manager(s) of SDC and its affiliates. CITY COUNCIL MINUTES SPECIAL MEETING Page 2 of 6 DECEMBER 11, 2024 Mr. Sontchi has been retained as a fiduciary with expertise in handling businesses that are in voluntary bankruptcy, and Mr. Sontchi was proposed to replace Robert Green and Robert Green Companies as the controlling manager(s) of SDC and its affiliates as the bankruptcy case moves forward, and that substitution has occurred. This is a corporate governance issue that was brought about in response to a legal issue raised by the U.S. Trustee's Office, noting that such substitution would need to take place in order to comply with bankruptcy protocol; the U.S. Trustee has stated on the record that, with the substitution of Mr. Sontchi, this legal issue has been adequately addressed. • As previously reported, there also have been several Interim Orders authorizing DIP Financing, as part of the City -led negotiated DIP Financing, which authorized the current CRO to administer and oversee the debtors estate, and allowed for payment of SDC costs to be made by the City, as specified in an approved budget. The Term Sheet and MOU, voted on by the Council this morning, will be submitted to the Bankruptcy Court as a proposed Final Order for the court's review and consideration, and if approved, final loan documents will be presented to Council for review and approval. The Term Sheet and MOU are necessary to get the DIP Financing before the U.S. Bankruptcy Court for its consideration. Mr. Ihrke next summarized the substance of the Council -approved Term Sheet as follows: • The borrowers of the DIP Financing are SDC and its affiliates, listed as the debtors in the bankruptcy case; and Mr. Sontchi is now the controlling manager for all of the debtors' entities. • The lender is the City of La Quinta. • The loan amount is not to exceed $11 million, or the "Funding Cap," and it includes the principal and all amounts previously funded by the City through the DIP Financing on an interim basis. • The loan will be what is known as a "priming" loan under federal bankruptcy law, which generally means that the City will have a "super -priority" security interest in all real and personal property held by the debtors, subject to limited "carve -outs" as set forth in the Term Sheet; as a "priming" loan, the City has the most secured type of loan available under federal bankruptcy law for the repayment of its loan. • The loan will bear interest at the Local Agency Investment Fund (LAIF) rate, set and periodically adjusted by the State of California, currently at 4.71%, and this rate was chosen because it is considered an acceptable interest accrual rate for public funds' investments. CITY COUNCIL MINUTES SPECIAL MEETING Page 3 of 6 DECEMBER 11, 2024 • The loan term and funding commitment by the City shall commence upon the entry of a Final Order by the U.S. Bankruptcy Court approving the loan (the "Approval Order") and shall continue until the 1st of several items to occur that would terminate the funding commitment, summarized in general as follows: (a) December 15, 2025; (b) Occurrence of an event of default; or (c) The loan Maturity Date, as defined in the Term Sheet, which in general would be the first to occur of the following: ✓ The effective date of a bankruptcy reorganization plan under Chapter 11 for any of the borrowers in the bankruptcy case; ✓ The closing of a sale, assignment, or transfer of all of the borrowers' assets to a successor developer; or ✓ December 31, 2025. • The City is indemnified by SDC and its affiliates against all claims and liability arising from or in connection with the transactions relating to the Term Sheet. • Milestones are included in the Final DIP Financing to ensure progress is made over the course of next year through actions necessary of the CRO and SDC, via Mr. Sontchi as the controlling manager, at a timely pace, with allowances for adjustments if needed, with such milestones including: o Continuing communications with the City during SDC's selection of a broker and the broker's required marketing process to obtain a report regarding cost to complete the project. o And the Bankruptcy Court review of the debtors' proposed plan to exit out of bankruptcy. • The Final DIP Financing secures the City consultation and approval rights with the CRO and debtors, who are required to continuously consult with and share information with the City as the process to search for and select a replacement developer and financing to complete the project moves forward, including: o The City shall have the right to consent to or reject the sale to any proposed developer/purchaser of the assets to take over the project and see its completion. • The loan proceeds must be used in a manner and for costs outlined in a City - approved budget; as has been reported previously, costs in the City -approved budget are to address remediation efforts and dust control at the site, and costs necessary to ensure the bankruptcy proceedings move forward with soliciting and retaining a qualified developer and financing to take over and complete the project. CITY COUNCIL MINUTES SPECIAL MEETING Page 4 of 6 DECEMBER 11, 2024 Once fully executed by the City and SDC, the Term Sheet will be submitted to the U.S. Bankruptcy Court and will be considered at the next scheduled hearing on January 2, 2025. Mr. Ihrke noted the public purposes served by Council's approval of the City -led DIP Financing loan as part of the bankruptcy proceedings, which include but are not limited to: • Ensure public safety and protection of the City -owned property and public amenities in and surrounding the debtors' property; the debtors property is in the SilverRock Specific Plan area that is comprised of approximately 525 acres, of which approximately 140 acres have been conveyed to SDC; the City -owned public amenities, currently in use that surround SDC's property, include the SilverRock public golf course, SilverRock Park, public roadway and infrastructure, all of which can be accessed by the public, and all of which are evidenced by the recorded site plan and maps; measures have already been put in place such as security fencing and other safety measures, will require continuous funding to be maintained to secure the City's assets through the bankruptcy process. • Remediate any public nuisances that may exist or may arise during the bankruptcy proceedings while a reorganization plan to move forward is put in place, such as structures and partially completed buildings exposed to the elements on SDC's parcels that will need to be remedied, as evidenced by photographs and drone footage of the Talus site. • Secure the City's interest in economic development; as recognized by State law, revenue generation is a valid public purpose (Gov. Code § 52200 et seq.), and that purpose is realized in connection with the transient occupancy taxes (TOT), sales taxes, and other revenues anticipated to be generated for the City upon completion of the Talus project; evidence of this public purpose is evidenced by the Economic Development Report prepared for this project, dated November 2014, which identified significant TOT revenue -generation from the development of the parcel as a world class resort from undeveloped land. • Secure the City's interest and maintain its ability to participate in the selection of a successor developer and financing mechanism to restart and complete the project, as evidenced by the Purchase, Sale, and Development Agreement, and subsequent amendments, between the City and the project developer, prior to the bankruptcy proceedings, showing the City's intent to maintain control over the developer and the project financing. This concluded Mr. Ihrke's report, and he stated that prior announcements regarding the bankruptcy case are available on the City's website at www.laquintaca.gov/taluslq. Mayor Evans said today's Council's motion also authorized the City Manager to execute the Term Sheet and related documents on behalf of the City upon City Attorney approval. CITY COUNCIL MINUTES SPECIAL MEETING Page 5 of 6 DECEMBER 11, 2024 ADJOURNMENT There being no further business, a motion was made and seconded by Councilmembers Pena/Fitzpatrick to adjourn at 10:17 a.m. Motion passed: ayes — 4, noes — 0, abstain — 0, absent — 1 (McGarrey). Respectfully submitted, MONIKA RADEVA, City Clerk City of La Quinta, California CITY COUNCIL MINUTES SPECIAL MEETING Page 6 of 6 DECEMBER 11, 2024