Minutes 04/27/1959 - Laserfiche WebLink

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The above .statement is without-_:proper regard for the provision in all the junior indebtedness contracts relating to ascertaining the 'present value' of these non-interest bearing obligations payable in the dLstant future; ostensibly February l, 1980, et seq. It must-also be noted that the project has to the present been financially successful, and hence the possibility of a somewhat earlier payment must be borne in mind. It wuuld .seem that this problem is not beyond solution if these factors are given appropriate weight: (a)lThe obligations, while sincerely entered into, were loosely computed as they did not represent 'hard money' in the minds of any of the contracting parties, but rather were entered into in the spirit o£ being generously computed as they were recognized as only problematical and at best payable in 1980 or a later date. (b) The Commission has worked diligently to promote its project for the~henefit of .the community, and hence in furthering this community service the local : gevernn~ents, who arethe payees .in the respective obligations, should co - operate in zhe furtherance of the Elizabeth .Ri~er Tunnel Commission's public.purposes. (c) The.s~atement of mutual intentions with ~regard to ascertaining 'present value~ of 'the respective ~obliEations shows in all events that if anticipated prier to 1980 they .were not to be paid at par, but only at their commuted. values. From the above it can justly be argued that ~the debts should be valued in light of the .spirit in which they were initially made; andtheir present value should be .computed in line with the~com putation hereina~fter 'set forth; and lastly, regardless of the funds available, all the communities involved should take a businesslike view toward the project itself and realize that it wiil serve our entire Elizabeth River community to a profit far in excess of any amounts realized from the payment of these'obligations volun - tartly assumed by the Commission. . - CONPUTATION OF PRESENT VALUE - The computation of the 'present value' of the junior non-interest bearing .obliga - tions contemplated under th~ respective contracts is merely the calculation of the present value of a future dollar. For example, if we .assumed (a) an interest rate of 3½% semm-annually, .and thatthe obligations would not he paid until the first maturity of the present bond issue, i.e., February I, 1980, then_we would have a 22 year period from February l, 1958, and on such.the present ~alue~'¥ould be 46.61069864 according to the Financial Compound Interest[and Annuity Tables, let. Ed. by Financial Publishing Company, Boston. If we ~as - sumed a 4% semi-annual {~,' ~idh 'i~ 'm0~e '~ea~i~{i6,' as it is unquestionably, the _probable rate we will have to pay for the money we would be using in accomplishing an early retirement of these debts, the present value would be 41~84007386. If the tunnel .paid- out five years earlier than initially anticipated, the factors for computing present value of a dollkr would become 55.44083869 at 3½% semivannually and 51.00281656 at 4%. Each earlier year of payment would progressively increase the present value of these non-lnterestbearing obli- gations. '' I~ i~ 'impossible ~to say when the debts would actuslly ma~ure;~ as the Commission's own view of proper toll charges; future operation costs, the economic conditions of the _area; our community's growth and generalwell-bezng are imponderable factors. It follows_that any figur~ selected would bean arbi- trary one, hence for the purposes of attempting to find a'solution of thiis problem it is suggested that the flat sum of 50¢ on the dollar b~ accepted as a reasonable and fair round figure computation of the present value of $4,000,000. of obligations without priority of one over the other. ' T~ i~'a certain unfairness ~o classify the 'third mortgage' debts with the two $2,000,000. obligations due Portsmouth and Norfolk County, as they wokld in due..course :have to stand aside until the $4~000,000. had been paid,. If weight is to he.given to this phase ~of the problem, it is suggested that if the$4,000,000, obligations~e re'ired at 509 on the dollar, then the other ~wo obligations be rezired at 45¢ on the dollar. If the rounded 'present dollar' computations suggested above are carried.out, we find the junior obligations to be: Due County of Norfolk on account of $2,000,000. obligation due.it at 506 on the dollar present value Due City of Portsmouth on account of $2,000,000.obligation due it at 506 on the dollar present value Due-City of Norfolk on account of its second junior 'obligation of $649,666.27, at its present val~e ~of 45~ on the_dollar DUe ~i~y of .Portsmouth on account of its.seqond juniorobtigation of $491,227.68, at its present value of 45~ on the dollar Total estimated p resent Value' ~f all junior obligations $1,000,000. 1,000~000. .292,350. 221,052. 2,513,402. RECAPITULATION Amount needed for refinancing Minimum amount needed to build second tunnel Present value of junior obligations $ 18,890,610. 23,613,000~ 2,513,~02. Total of Estimated Needed Funds $ 45,117,012. Th~3above is mere%y a resIatemen~ of the foregoing paragraph entitled 'The Problem', namely, we have available $2,49~,390. to retire $5,140,894. of junior indebtednesses, which, even when broughi to a fair ~evaluation of their present worth we find the cash available $117,012. short.of the amount needed to fully discharge the s~m]e. Assuming this relatively small balance-can.be met by adjustments within the frame- work of the cost of the proposed new construction, it is nevertheless apparent that full co-operation fro~ the political subdivisions of the Elizabeth River commBnity must be had if this .neededproject is brought to a prompt fruition. $UG6ESTED PLAN AND CONCLUSION In order to realimtically work toward such an end, it is suggested: