The Del Mar City Council decided on Oct. 20 to secure a bank loan to assure timely payments on a $3.5 million promissory note the Del Mar Union School District's Ninth Street Shores property.
With a Nov. 15 deadline looming for a scheduled payment of over $623,000 and insufficient funds available from either the city or community fundraisers, the city was left with little option but to obtain credit in what has become a very unstable financial world.
"If we default there are serious repercussions," Deputy Mayor Crystal Crawford said Monday. "We made a decision collectively to buy the property. "Now we have no choice."
The approved loan will come from Union Bank of California in the amount of $3.5 million. The interest rate will be based on LIBOR (a rate at which banks borrow from other banks in the London inter-bank market) at the time of signing.
The rate, currently in the 3.5 percent range but changing daily, will be fixed for the first year. After one year the city will have the opportunity to repay the loan without penalty.
At the same time the city will also draw down $180,000 from its Open Space Acquisition Fund to ensure two debt service payments.
The fund's total $443,000 possibly could be expended over the three-year life of the loan - depending on further fundraising success. The city will still consider donations as the first source of funding while the loan gathers interest.
In a sign of the times, the city's financial adviser Richard Morales said two major banks, Bank of America and First Republic Bank, turned down the city's loan request outright - this despite the city carrying a relatively low debt load and AA credit rating.
At Morales' urging, the council elected not to pursue additional credit for two other capital projects - the 21st Street sewer lift station and the 17th Street lifeguard and community services headquarters.
"Due to continuing instability and turmoil, I'm recommending very strongly to just prepay the Shores promissory note," said Morales. "This is not the best time to be financing. If it weren't for the Shores I wouldn't be recommending you do this financing at all."
Earlier this month, Joe Sullivan, president of the Friends of Del Mar Parks, the nonprofit organization heading Shores fundraising efforts, told the city they wouldn't have the money to meet the first of seven scheduled principal and interest payments on the promissory note.
This prompted the need for immediate action from the city or it faced default and undoubtedly a downgrading of its credit rating.
Sullivan said he was grateful for that action and promised to continue concentrated fundraising efforts.
"This is a marathon now," he said, "not a sprint. We now have to focus on participation by everyone in the community."