By Ray Stern
By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
Delaying action on the Alta Mesa loan removed one obstacle that could have triggered the pension funds to refuse funding the permanent loan.
But First Interstate Bank soon faced the bitter prospect of providing additional loans to Symington.
About the same the Alta Mesa forbearance agreement was being finalized, the union pension funds--which knew nothing about the forbearance--informed Symington and First Interstate that they would not fund the entire amount of the construction loan Symington owed to First Interstate.
Instead, the pension funds planned to "hold back" $2.8 million of the $10 million loan to cover future tenant improvements and projected operating deficits.
The pension funds' plan meant that First Interstate would only receive $7.2 million of the $8.4 million owed by Symington. First Interstate would have to rely on Symington, who already had defaulted on the Alta Mesa loan, to cover the $1.2 million Mercado shortfall.
To make matters worse for First Interstate, the $1.2 million would be unsecured debt because First Interstate would have to give up its deed of trust to the Mercado in exchange for the pension funds' loan proceeds.
First Interstate was in a bind.
The bank didn't want to be forced to rely on Symington for repayment, because Symington had admitted to the bank that he couldn't pay it. But First Interstate didn't want to press the pension funds too hard about funding the full $10 million in fear the pension funds would walk away from the table.
First Interstate lending officer Jeffrey White notified the bank's senior loan committee of the problems in a detailed June 7, 1990, memorandum. He suggested that the bank be prepared to write off the $1.2 million Mercado shortfall as uncollectable from Symington.
White also informed the committee that Symington had overstated his $11.9 million net worth when he submitted a personal financial statement to First Interstate in May 1990.
"Symington's stated net worth is almost entirely vested in commercial real estate, indicated market values of which he has stated do not accurately reflect the current market," White wrote.
In addition, White disclosed that $791,000 in "marketable securities" listed on Symington's financial statement "are held in an irrevocable family trust of which Symington is the beneficiary" and that the assets cannot be "liquidated or pledged."
The pension funds allege that First Interstate ignored its obligation to tell federal banking regulators that "Symington had engaged in acts that constituted known or suspected criminal violations" by submitting a false financial statement.
Despite White's disclosure of Symington's dismal financial condition, First Interstate continued to press the union pension funds to make the permanent Mercado loan without informing them of Symington's financial problems.
To induce the pension funds to make the permanent loan, Symington offered to extend his personal guarantee to repay the $10 million loan to five years after the date the project was fully leased. The pension funds allege that Symington and First Interstate knew Symington's personal guarantee was worthless, but failed to inform the pension funds.
At the same time, First Interstate demanded that Symington submit a new personal financial statement that showed "both cost and current market value of listed assets." First Interstate also wanted details of Symington's trusts.
Symington did not immediately respond to First Interstate's June 8, 1990, request, forcing the bank to ask again on June 19, 1990. Symington finally responded on June 26, 1990, by submitting a statement containing identical values indicating a net worth of $11.9 million as the ones he sent to the bank and the pension funds in May.
However, Symington added a disclaimer stating that he was providing "a 'best efforts' evaluation of my financial condition. The current depression in the real estate market makes it difficult to determine asset value, thus any evaluation is highly subjective."
The pension funds allege that First Interstate now had ample proof of Symington's poor financial condition and that the pension funds were entitled to that data.
And more bad news was flowing in every day. First Interstate confirmed that Symington's "readily marketable securities" were in fact held by a "spendthrift trust" and were off-limits to creditors.
First Interstate also learned that Symington's Mercado limited partners were upset because the return-on-investment projections that had lured them to invest had contained mathematical errors. The limited partners wanted out of the partnership and were demanding their money back from Symington, White stated in his June 7, 1990, memo to the loan committee.
"This threat currently prevents Mercado's counsel from issuing the Permanent Lender a 'clean' opinion letter, a condition precedent to closing [the pension funds' loan]," White stated.
Symington wanted First Interstate to pay off the limited partners' $500,000 investment, an option the bank refused because White noted it would change the partnership structure and give the pension funds "a clear out."
First Interstate also learned that Symington was having difficulty funding tenant improvements at the Mercado for space to be leased by Arizona State University. Symington sought a loan from First Interstate to continue tenant improvements "and to avoid having to disclose the situation" to the pension funds.
First Interstate and Symington managed to mollify the limited partners and provide the tenant improvements in the days leading up to the June 29, 1990, closing date to obtain long-term financing from the union pension funds.