It was as I suspected could happen in the Tunnel deal with Detroit. The $75 million loan from Windsor to Detroit could have really turned out to be a $131 million transaction. How would that ever have been paid back!
More importantly, the tragedy in this entire transaction is that there did not seem to be any realization on Windsor’s side that if the new DRIC bridge was built, and if DRIC was correct, the Tunnel could lose 25% of its business. How then, could this transaction work, especially if the Detroit Mayor claimed that the City of Detroit was not on the hook if there was a default.
Now we know why Kwame said that the loan was 5% when that did not seem to be the amount that Infrastructure Ontario was going to charge according to their website. Another confusing piece of the puzzle in this transaction.
I had to file a Freedom of Information Application with Infrastructure Ontario to try and get the data on the Detroit/Windsor Tunnel deal. You see, it was such a fantastic transaction that our Mayor would not let the Public know what it was all about nor, it seems, members of the Tunnel Commission or Councillors. I assume that these people have not yet received answers to their questions or else they would have told us.
The secret is now out as you shall see in this BLOG! I can now understand why this has never been revealed and why questions have never been answered.
Our Mayor is a very clever young man. It is very clear right now to me that in certain circumstances there is no financial case to be made for this transaction. But Eddie never said that there was did he. He always talked about a “business case.” He was being “accurate but narrow” again. It is not his fault if we made assumptions that were not true. As I Blogged before
- “Eddie’s continued use of the words “business case” in relation to the Tunnel deal bothered me. It was too deliberate a choice of language that obviously could mean anything to anyone. What the heck could it mean I thought? I assumed that no one would spend $75 million for half the tunnel unless one expected to make a profit on the transaction. I did not know how that could be done so I made the assumption that the deal would never take place.
It was really another “gotcha” because I did not understand what was being said. I had not been listening carefully enough. It is starting to fall into place for me.
Nowhere did Eddie say that the transaction had to make financial sense. Nowhere did he say that we had to make a profit. I realized finally, in fact, that the transaction could result in a Detroit default thereby costing the City money and he could still claim that it met the terms of his business case.”
In this respect, the Mayor could almost never be wrong. Even if this deal made no financial sense whatsoever and cost taxpayers millions and millions of dollars, the Mayor could claim a victory. The business case is the public interest in keeping the Tunnel out of the hands of some dastardly private enterprise group that would cement up the entranceway to the Tunnel to keep away paying customers. Moreover, 5,000 commuters had to be protected, from what I am not sure.
However, the Mayor did slip up once when it was reported:
- "But Sutts and Francis said Tuesday they are being careful not to complete any tunnel deal that could prove costly in the years to come."
Speaking of Mr. Sutts, he and his law partners may still have a concern however because
- “Sutts said previously: "the deal will not be completed until he is fully assured local taxpayers will not be hurt. “We will be extraordinarily cautious so costs of the acquisition will be self-supporting of the project itself. That there will be no need to go to the well of the city to support this transaction."
If the numbers do not prove to be accurate and there’s a shortfall, then are Mr. Sutts and his colleagues liable based on his comment?
Of course, as is usual with Government, I did not get everything I asked for. Accordingly I have had to file an appeal to a waste a few more months of time before I get more information. However where there is a will, there is a way.
I have been able to get my hands on certain documentation that I believe shows this deal to be a bad one for Windsor Taxpayers. It never made sense to me before and it still does not make sense to me now that I have seen more of it.
I have seen what I believe to be the Application to Infrastructure Ontario. It was dated April 30, 2008. Remember that the deal was put on hold by the City. It does not appear that Infrastructure Ontario made a decision whether they would loan the money or not. My suspicion is that they would not do so. I suspect that they have told the City how much they were prepared to loan to the Tunnel Subsidiary. Again, if you recall, I speculated that the amount was in the range of $15-$20M. A far distance from $75M if I am correct.
If what I have seen is true, I can now Blog that the amount of the loan transaction was supposed to be in the amount of $75 million with Infrastructure Ontario. The borrower is the Windsor–Detroit Tunnel Corporation, the City’s subsidiary. The City expected that this deal would be concluded on July 2, 2008. The length of the transaction was 40 years.
The documentation disclosed that there is litigation going on with the Tunnel. I believe it is the litigation that I have described previously where funds are being held back by the operator but I don’t do not know if that is the answer because it is not disclosed in the Application Form by the City. That litigation however is very serious because it is stated that it could impact the ability to pay back the loan. Again, something that the Public has never been told.
The transaction is really for the acquisition of the Canadian half of the tunnel. Effectively, this is allowing our Tunnel Subsidiary to pay part of the purchase price for the Tunnel that was sold to it by the City.
As you may recall the purchase price for that was determined to be slightly over $111 million. There is some kind of note receivable available for about $36.5 million leaving the balance of $75 million for which the loan application was made. It may have been structured this way so that the Province would not be accused of allowing the City to use its money for a US asset directly. There may also be a constitutional reason why it has to be done this way as well. Who knows.
All I know is that it gets into the hands of the City $75 million which they can then turn around and loan to the City of Detroit. There is no guarantee by the City of repayment to Infrastructure Ontario as set out in the Application.
One interesting comment made is that the lifespan of the Tunnel is 200 years. If the Tunnel can last that long, then why was Sam Schwartz complaining about the Ambassador Bridge's health!
The Document that I have posted up above is a Summary of the Financial Analysis regarding the transaction with Detroit. I am not certain who prepared this document ie whether someone from the Administration in Windsor or Detroit. I have to tell you as well that I am not certain how some of these calculations are made, especially with respect to Peak Amount and Peak Year.
There is a concern however that in certain cases the Detroit loan and the loan to Windsor would not be paid off until after 2082 which is approximately the term of the deal with Detroit. In one case the loan with Detroit and Windsor might never be paid off.
Below are the schedules of cash flows for various scenarios. I will let you try and figure them out for yourself. I know that they are very difficult to read. Again I do not know who prepared the tables. Note that in 2 cases, the $0 payments reflect that there is an existing lease with DCTC, or is it Alinda now, for a dozen more years.
Here is the more interesting part of the materials in my possession. The Fiscal Analysis Division of Detroit City Council took a look at the documents and analysed them too. Here are some of their comments:- 1) the more realistic model of repayment shows that the Detroit loan is paid off in at least 75 years but mostly longer.
- 2) Detroit had a concern because the Tunnel might never ever be free of debt and could be on the hook for collateral and not be an asset free and clear on the books of the Detroit Tunnel Authority
- 3) If the interest rate was above 5%, as it probably would be based on the Infrastructure Ontario website rate at the time, then the $75 million principal amount would increase because there was an existing lease agreement with the Detroit and Canada Tunnel Corporation. There would not be enough money to meet the debt service obligations such that the shortfalls will be added to the principal
- 4) According to Goldman Sachs, the amount of the loan could increase from $75 million to $131 million by 2023.
- 5) There was concern about the economic viability of this transaction for the City of Detroit.
If there was concern on the Detroit side that this transaction did not make sense for them, then why would we enter into it if the other side might default. If that happened then where would the taxpayers of Windsor be in that case? This was supposed to be a great deal for Detroit. If they were nervous about it, then I, as a citizen of Windsor who is the lender, ought to be scared [expletive deleted]....well you can guess the last word if you remember Eddie's choice of language. This is a G-rated BLOG!
Let me be clear. I have no idea what this transaction is really all about or what the final terms were supposed to be or if there were to be guarantees and so on since it has changed so many times. I do not know what happens in the event of a default. Would the City of Windsor take over the Tunnel completely as an example. All that I have are the sketchiest of details, some of which I am sharing with you now.
And that is what troubles me. This is not an insignificant transaction. There are legitimate and serious questions raised on the other side about the economic viability of this transaction that make me very, very nervous.
Who is analysing the transaction here to protect us and to warn us if there are problems? The Mayor? Our Councillors or Tunnel Commissioners? The Audit Committee? Administration? Our outside lawyers? Or is the reality that we have NO ONE and that there are no checks and balances? Are we stuck so that we have to take it on faith that our leaders know what they are doing!
The deal has been hidden from us for reasons unknown by our Mayor. When were we going to see the transaction? After it was signed when it was too late? Were we going to have to file another Municipal Freedom of Information Application as with the Arena Deal and have to launch Privacy Commission appeals? If it is such a terrific transaction for us, then why isn’t the Mayor broadcasting it throughout the entire City so that we can applaud his financial genius.
I’m tired of this. I am tired of him playing entrepreneur with my taxpayer money. I have seen what he did on the East End Arena deal with the Spitfires and the naming rights and I am not happy with that. I know what he did on the Mady Garage deal and the Greyhound deal with respect to the Bus Terminal. Who can forget the cheap parking garage rates either for the Keg. And here is the $75 million Tunnel loan deal, or is it a $131 million deal, that may never ever get repaid.
Where is Council? Why are they ignoring their legal obligations? Why are they not demanding full information from the Mayor? Why are they permitting him to make proposals to the University with respect to their Engineering Complex that are not proposals? Why are they permitting him to waste money on Canal visions when we cannot pay for the Sandwich CIP? Why are they not outraged at his Jobs program in which he wants $100 million to be provided to a Development Commission that has achieved little other than wasting taxpayer money on trips overseas?
Is it any wonder that this City is out of control? Is it any wonder that we have a Council that has been fighting the Senior Levels for years with thousands of jobs and billions of dollars of investment that could potentially be lost? Is it any wonder that the Citizens of Windsor have lost confidence in this Mayor and this Council? We are the laughing stock of Canada!
The person that I blame for all of this is the Premier. He has allowed City politicians to stay in office for an extra year without allowing the Citizens a way of getting rid of them! If only we had the right of recall now.
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