Devon tenders $95M to Oklahoma City
Loan will help pay for improvements near proposed tower before its completion
BY STEVE LACKMEYER
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Published: September 24, 2009
Devon Energy Corp. is extending a $95 million line of credit to Oklahoma City to expedite completion of an ambitious downtown makeover project being launched in conjunction with construction of a new corporate headquarters.
A proposed tax increment financing district to be funded by construction of a new Devon Energy world headquarters is expected to provide a significant overhaul of the Myriad Gardens and rebuild downtown streets and sidewalks. PROVIDED BY MERRYWEATHERPHOTO.COM
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What is a TIF?
A tax increment finance district, also known as a TIF, allows a city, town or county to use tax money generated by a new development to pay for public improvements in the development area. Improvements associated with redevelopment projects can be supported by bonds, with the debt to be repaid by money generated within the TIF district. The TIF for the new Devon tower will last for 25 years and projects will be paid through a line of credit and short-term bond financing.
Details of deal
The terms of the deal call for a 5 percent interest rate with the first draw down, likely to be about $14 million, to occur on Oct. 1 as Devon begins to close on buying the new headquarters site from the Oklahoma City Urban Renewal Authority and the Central Oklahoma Transportation and Parking Authority. City officials estimate the interest to be paid will range between $17.5 million and $18.5 million, depending on draw-downs.
David Harris, associate general counsel with Devon, said the financing was considered after the city explored several other options to pay for timing its improvements with the tower’s construction.
"This advanced financing of TIF revenues is very common,” Harris said. "What’s unique about this particular instance is because the TIF is undeveloped and the building isn’t built yet, the city isn’t able to pursue traditional financing sources.
As a result of that, Devon offered to provide this financing to make sure the improvements are done in a timely manner.”
During a presentation of the financing to the city council, O’Connor was asked by councilman Brian Walters what will happen if the new tower is either scaled down or not built.
Is it a ‘bad loan’?
O’Connor and Harris agreed Devon would be stuck with a "bad loan” — one that either would be paid off over the increment district’s 25-year lifespan or would not be fully recovered. O’Connor added that in such a scenario, however, the city would likely not be drawing down the entire $95 million.
O’Connor said the city plans to make quarterly draws, as needed, and will rely on cash proceeds from the district as much as possible. O’Connor expects the line of credit to be terminated with an application for traditional long-term financing on Sept. 30, 2015 — when the tower is set to be completed and added to property tax rolls.
Devon spokesman Chip Minty noted as an example that the $95 million is less than the company’s typical cost to drill a single well in the Gulf of Mexico.
"Our board of directors and executive management team are in the loop and have looked at this,” Harris said. "This is just an ancillary part of doing the project.”
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My only question on this is how many times does the City end up paying interest on the money? The article states between $17.5M and $18.5M then there is the interest on the Bond money to pay for the TIF money later on too?? The TIF is for 25 years.
Possible that the City is actually coming out ahead on the deal even if paying the interest more than once (like cheaper to move utilities etc before the streets get redone).
That being said, you can count on 1 hand how many times a corporation has been willing to even help out like this though. So Devon is unique in their willingness to help out...even if it is for their benefit. So I still give big props to Devon for being so committed to OKC.