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With respect to each project, SBE operated as a general
partner of a partnership formed to act as the developer. The
developer of the Whitewater Project was the Whitewater Limited
Partnership (Whitewater, Ltd.), and the developer of the Ironwood
Project was Ironwood Apartments, Ltd. (Ironwood, Ltd.).
Credit Enhancement
As security for the loan, each developer was to obtain an
irrevocable letter of credit, in exchange for a second
developer's note, called a "reimbursement note", secured by a
mortgage on the property to be developed. The provider of the
letter of credit would then discount the developer's note to
another entity--the "mortgage purchaser"--in exchange for cash
that the letter of credit provider would use to acquire, from a
solid financial institution, a "guaranteed investment contract"
(GIC). The GIC would be pledged to secure payment of interest
and principal, under the letter of credit, to the bondholders.
In effect, each developer would issue a second note in order to
obtain a guaranteed means of repayment on its first note.
For the Ironwood project, the letter of credit provider was
to be Mercantile Capital Finance Corp. No. 30 (MCFC No. 30) and
for the Whitewater project, Mercantile Capital Finance Corp. No.
47 (MCFC No. 47). The sole shareholder of each of these
corporations was James J. Keefe. The mortgage purchaser for both
projects was Unified Capital Corp. (Unified). This entity was
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Last modified: May 25, 2011