According to Collingswood Mayor James Maley, Moody’s Investors Service’s credit downgrade report—which brought the borough from A1 status in 2010 to its current Ba1 status—lacked information about when an $8.5 million debt, generated by a LumberYard Condominium construction loan extension, must be repaid.
According to the Moody’s report, recession effects led the borough to extend a loan on the condominium complex, bringing the extended loan repayment deadline to October 7, 2011. While borough commissioners confirmed the debt amount and extension deadline at this month’s meeting, Maley said the borough’s plan to pay off its loan—by out—includes details that were not mentioned by Moody’s.
“The Moody’s report is more than disappointing,” said Maley Tuesday evening, “because we’ve given them a lot of information that they have not included in their report.
“(Regarding the impending) on our construction loan extension: we have an agreement with the banks—and have had it for weeks—that the October deadline will be extended for 60 days, while the borough goes through with its ordinance to plan out the borrowing of money, the lease plans, etc.,” said Maley. “Moody’s knows that, but it was not included in their report.”
Maley said lawyers have yet to draft new extension documents, but they are in the works.
“So we have this (60-day) extension, and this (credit downgrade) doesn’t affect our ability to go through with our plans,” he said. “The only impact the downgrade could have on us is if we were to go back on permanent (long-term borrowing). And we’re doing short-term borrowing, which we’re allowed to do for the next four years. And we will have this all corrected by then.
But Maley said the Moody’s report focused solely on the October deadline. To help resolve this situation, the borough has already begun resubmitting information to Moody’s which Maley said wasn’t included in the downgrade report. This information, according to Maley, includes where the borough currently stands with its extension plans.
“In the press release document that Moody’s put out, they emphasize that the Oct. 7 deadline is coming and we don’t have the money to pay it off,” said Maley. “Well, we will. We’re raising the money to pay off (LumberYard debt), we have a 60-day extension from our October deadline, and then we’ll enter into a modification extension agreement—which will go on for at least another year after that.”
Regarding taking out a loan to purchase and rent the remaining 14 LumberYard Condominium units, Maley said the borough will seek the money in increments from local banks.
“We don’t yet know exactly which bank will be giving us a loan. When we authorize it, we’ll receive quotes (and compare) interest rates,” said Maley, who responded to concerns about whether the borough would be granted a sum as large as $8.5 million. “Usually just local banks will bid on it. But we’re not going out and borrowing $6 million tomorrow. We’re borrowing a portion of that at a time.”
Maley said the borough’s credit report falls in line with other, larger-scale downgrades.
“I think Moody’s—and credit ratings agencies—are coming under tighter review,” he said. “That’s why the State of New Jersey was downgraded; it’s why the United States of America was downgraded. There’s a pattern there, and we think Moody’s ignored that situation.”
To read the full story about commissioners' ordinance—to reduce $8.5 million in debt by appropriating $5,992,246 and purchasing the 14 remaining vacant units for lease/lease-purchase agreements—click .