Politics & Government

LumberYard Debt, Credit Downgrade Overpower Town Forum

Wednesday's town forum meeting mainly featured questions about Collingswood's recent credit downgrade, generated by debt from the LumberYard project.

Discussion at Wednesday's town forum meeting revolved mainly around Collingswood's , which Moody's dropped to junk status this week, and the .

Collingswood Mayor James Maley opened the meeting, attended by about 90 people, by stating the following:

"We have two of these town forums a year, and the agenda is set completely by you (the public)," said Maley. "But before we begin taking questions, let me start be addressing the news of the day—the Moody's downgrade.

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"We knew that Moody's was reviewing us; they do it every few years. This year, they were more detailed in the questions they asked," said Maley. "We presumed that was because things had happened in the world and agencies like theirs were being stricter. We fully expected a downgrade. But we never in a million years expected them to downgrade us the way they did."

Moody's downgraded Collingswood from A1 status, to Ba1, a six-point drop reportedly due to $8.5 million in debt stemming from the LumberYard Condominium project. 

Find out what's happening in Collingswoodwith free, real-time updates from Patch.

“The extension of the (LumberYard) construction loan, which we did last spring, ends Oct. 7, but we’ve been meeting with banks about it all summer long,” Maley said. “We’ve had agreements with these banks. Moodys is saying to us, ‘You’re at risk of defaulting because this Oct. 7 loan repayment deadline is coming up and you can't pay it back.' But we already know that the banks will extend that time period 60 days.”

After discussing items which he felt Moody’s did incorrectly in calculating the borough’s credit downgrade, Maley opened the floor to public questions. The responses are Maley’s.

What’s the immediate net effect of this downgrade?

It has an impact on our ability to sell even short-term notes. It’s going to make it harder. That’s why we’re making it the borough’s main focus to get this rating moved up a notch. We’re talking to Moody’s and we’ve submitted a report. The construction loan interest is 6-and-a-half percent right now The bond rate was 2 (percent). 

If we pay for these units, what happens if the developer defaults? 

Castanza Builders, the developer, doesn’t get anything. It is our (the borough’s) development. No money will be going to them or any other developer. It’s all going to be used to pay down debt.

Who owns this property now?

LumberYard, LLC, which is a redeveloper entity, and the principals (in the LLC) are a gentleman from Castanza Builders, and the financial backers are from the borough.

Do we really owe $4.7 million on Oct. 7? What happens if we don’t get the money?

We will get this resolved. The only obstacle there is to this whole thing working out is the Moody’s report. We got knocked down six notches.

I sell real estate, and I know there’s a very good chance you won’t get the money. Is it going to come from me? I pay taxes.

No. The lender in this a consortium of about 25 banks. Sun Bank is the leader. We’ve had a great relationship with Sun. Even with this (Moody’s downgrade) happening, we’ve talked to them and they’ve said we may have to restructure the way we’re doing this. They want to work with us. We are not going to be facing that kind of default. I’m confident we’ll get Moody’s to change our rating a bit. And simultaneously, we’re working with the banks. 

You called some of the information mentioned in the Moody’s report ‘inaccurate.’ How can you guarantee that these items (and the resulting downgrade) won’t affect our taxes?

We can’t. We’re just saying that we’re doing everything we can to ensure it won’t. If this didn’t happen with Moody’s, this question wouldn’t be an issue. 

What exactly did you find inaccurate in the Moody’s report?

The issues they mentioned about our surplus, our loss of population, the ending of this construction extension loan and our inability to pay it because instead of the $4 million that’s due, we only have $1 million in the bank. Items like these. 

Now that you’re renting out the remaining units in the LumberYard Condominiums, exactly what are the terms of the leases?

Tenants have a maximum of 24 months they can stay under the lease, regardless of (whether they) purchase or have an option to purchase. If they don’t buy after 24 months, they vacate. 

What is the premium we’ll be paying for this?

There’s no premium. The money we pay is paying off the debt. Right now, we’re paying off interest on a loan that is 6 percent. We need to lower that number. 

What are the terms of this bond?

It’s short-term financing for one year. When you go out for one year, the total—if we borrowed everything—would come to $150,000 per year. When we go to roll that note, we reduce it by $150,000. You can do that for three to four years, then you make principal payments, and you ask yourself, ‘Is this a good time to go out to market for permanent financing?’

 

After the meeting, Collingswood resident Joe Dinella spoke to Patch about his concerns. 

“I didn’t hear anything about a Plan B,” said Dinella. “This plan is just going to put a Band-Aid on a big problem.”


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