The Del Mar City Council decided this week 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 4 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.
Despite a AA credit rating and low current debt load, the city had its loan request turned down by both Bank of America and First Republic Bank.