Harbor Bancorp & Subsidiaries - Page 49

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               The Bonds are secured by, and are paid solely from, a                  
               direct pay Letter of Credit issued by Mercantile                       
               Capital Finance Corporation No. 30 (the "Credit                        
               Institution") to secure and provide the source of                      
               repayment of the principal of, and interest on, a loan                 
               to be made to the Developer to finance the Development                 
               (as hereinafter defined) with respect to which the                     
               Bonds are issued.  The sole source of payment of the                   
               Letter of Credit is a guaranteed investment contract                   
               . . . described herein, the payments on which are to be                
               made to the First National Bank of Commerce, New                       
               Orleans, Louisiana, as collateral agent (the Collateral                
               Agent").                                                               
          The Secondary Offering Statement for the Whitewater bonds is                
          identical except that Mercantile Capital Finance Corporation                
          (MCFC) No. 47 is substituted for MCFC No. 30.  The letters of               
          credit (secured by the guaranteed investment contracts) were,               
          thus, in substance, if not in form, investment property held by             
          the Housing Authority.  I say that for the following reasons:               
          The letters of credit were to be the source of funds to discharge           
          the Housing Authority's nominal obligation to repay the bonds.              
          The developer notes were of no economic consequence to the                  
          Housing Authority (or to the bondholders).  Neither the Housing             
          Authority nor the bondholders necessarily cared whether the                 
          developer notes were paid.  Indeed, it is difficult to see how,             
          if the deal had gone as planned, the developers could have paid             
          off both the developer notes and the reimbursement notes (issued            
          to pay for the letters of credit).  Based on that rationale, I              
          would say that the letters of credit were acquired by the Housing           
          Authority and were not acquired in order to carry out the                   
          governmental purpose of the issue.  Accordingly, the letters of             




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