In December 2020, Council authorized increasing the credit facilities of the Regina Exhibition Association Limited (REAL) to support REAL’s cash flow through the remainder of the pandemic. Fortunately, REAL did not need to access the new credit facilities in early 2021 for the reasons outlined below but now is in need of the funds. As a result, REAL and the Administration began negotiations with REAL’s lender in the last few months to finalize these credit facilities and have identified changes necessary to Bylaw 2015-25. Further, through discussions with REAL’s lender, the interest rate offered by the bank has been reduced, requiring the bylaw be updated to reflect the lower rate.
The impact of the recommendation is no change to the overall debt of REAL but the changes will reduce the interest costs payable by REAL by five hundredths of a per cent on the facilities outlined in the Appendix. The City’s debt limit set by the Saskatchewan Municipal Board is $450 million. The City’s debt utilization as of July 31, 2021 is $336,437,275 and within the established limit.
None with respect to this report.
Public notice was issued on July 24, 2021 of the intent to consider amendments to the borrowing and guarantee bylaw for the Regina Exhibition Association Limited. Notices were placed in the Regina Leader Post, on the public notice board at City Hall, and on the City’s website (Regina.ca).
In Report CM20-8 at the April 15, 2020 Council meeting, Administration discussed the impacts the COVID-19 pandemic has had on REAL. The report outlined REAL’s need for additional cash flow to continue minimal operations through the pandemic. To support REAL, Council authorized a change to REAL’s credit facilities by $3.8 million from $3 million to $6.8 million to the maximum available within the City’s current $13 million debt guarantee at the time. The report indicated that if the pandemic lasted longer than initially expected, REAL may require further support.
On December 16, 2020 in Report CR20-96, Council approved increasing the total credit available to REAL by $8 million, so that REAL’s debt available went from a total of $13 million to a total of $21 million. The purpose of this increased borrowing room was to further support REAL’s working capital through the COVID-19 pandemic. At the time, REAL had expected to require access to these funds in early 2021.
To date, REAL has not accessed the increased $8 million due to receiving additional revenue that reduced REAL’s need for debt through the pandemic. REAL received the Canada Emergency Wage Supplement (CEWS) funding that provided $4.1 million in support to pay salaries of staff delivering service through the pandemic in 2020, with a further $2.0 million expected to be received in 2021. REAL was also able to re-negotiate contracts with the Saskatchewan Health Authority to provide additional cash flow.
When Administration approached Council in December, 2020, REAL had estimated the impact of the pandemic would require the $8 million in additional to the increase of $3.8 million in its operating credit facility previously approved by Council through CR20-96 as well as full use of REAL’s other credit facilities by December 31, 2022 to address its projected cashflow shortfall of approximately $12 million over this time period. Pursuant to December forecast, REAL had little to no cash flow flexibility to address any unanticipated financial pressures and the December report recognized this by noting further assistance might be required in 2022.
REAL’s pursuit and receipt of CEWS funding and as well as efficiencies achieved at REAL have improved REAL’s cash position since December 2020 with REAL currently projected a cashflow shortfall of approximately $7.5 million to December 31, 2022. As a result, it is anticipated that REAL may not require the entire $8 million approved in CR20-96 and will only draw funds as needed. Further, Administration believes the improvement in REAL’s cash flow position along with the previously approved credit facilities provides REAL flexibility to address any unanticipated impacts to its working capital through to 2022. Therefore, the $8 million debt facility has been structured as a non-revolving facility that REAL can draw upon as needed until December, 31, 2022. On December 31, 2022 the total will be locked and no further draws permitted. REAL will only draw on this facility as needed for working capital, as such, the amount borrowed may be less than $8 million. Administration will review REAL’s debt usage and will bring a future report to Council on any subsequent credit limit adjustments as needed. REAL is currently pursuing development opportunities to enhance the activation of Evraz Place and increase revenue. The debt contemplated in this report is exclusively for working capital, any potential debt for the purpose of funding development would be discussed in a separate report.
As REAL now needs this increased funding to support working capital, REAL and the Administration began negotiations with REAL’s lender in the last few months to finalize these credit facilities. During negotiations with REAL’s lender, HSBC, Administration determined updated wording was necessary in the Bylaw to match the changes that REAL wants to its credit facilities as well as the wording used in the lender’s loan documents. These updates include reducing the loan amounts of Facility B and Facility C to account for the payments that REAL has made since the Bylaw changes in December 2020. Further, updates are needed to clarify that Facilities A, B, C and G are all demand facilities. Facility B is being changed to provide for a three-year loan amortization and is repayable through minimum annual principal repayments of the lesser of the loan balance or $1 million. Facility G is being changed to provide for a twelve-year loan amortization and is repayable through minimum annual principal repayments of the lesser of the loan balance or $700,000 (the original repayment structure was the lesser of the loan balance or $1 million). Also, during negotiations, REAL was able to secure an interest rate reduction of 5 hundredths of a percent on all credit facilities other than the credit card facility. This reduction is to the prime rate so the change is from prime rate minus 0.25% to prime rate minus 0.30%. Finally, there was also a change to the repayment source for Facility G by adding operating funds to any payment amount required in excess of the City operating grant. These corrective changes and interest rate reductions are outlined in Appendix A.
REAL further identified an opportunity to improve their corporate credit card program to better support operations by providing more flexibility and control to REAL admin users, such as introducing one-time virtual cards, ability to adjust cardholder credit limits, and improved processing of US Dollar transactions. In addition, the new program should increase the rebates paid back to REAL. The proposed changes have been outlined in Appendix A.
In December 2021, Council further approved an operating grant of $700,000 per year, beginning in 2021 to support REAL in servicing their debt. Administration recommends this grant is unchanged to support repayment of the up to $8 million in debt that was required due to direct COVID-19 impacts as discussed in this report and CR20-96.
The original decision to approve REAL’s debt of $13M and provide a guarantee is set out in CR15-23 from the March 23, 2015 Council meeting.
The decision to change some of the original credit facilities to assist REAL with its cash flow because of the COVID-19 pandemic is set out in Report CM20-8 from the April 15, 2020 Council meeting.
The decision to increase REAL’s debt from $13 million to $21 million is set out in Report CR20-96 from the December 16, 2020 Council meeting.
Respectfully Submitted, Respectfully Submitted,
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