NEW YORK - Moody's Investors Service late Monday downgraded the general obligation rating of Collingswood, N.J., six notches to Ba1 from A1 – called a “super downgrade” – and placed it on a watch list for a possible further downgrade. This affects $27.8 million in rated outstanding debt.
The rating agency questions whether Collingswood, seven miles southeast of Philadelphia with a 14,000 population, can make payments within 30 days on its notes. The borough is a guarantor for an $8.5 million redevelopment loan that matures Oct. 7.
In May 2006, Lumberyard Redevelopment LLC entered into an $18 million revolving bank loan to build the Lumberyard Condos, consisting of 119 residential and 21 commercial units. The company expected full occupancy within five years. While the developer was expected to repay the debt service, the loan was also secured by a guaranty from the borough.
After the housing downturn, the agreement was twice modified, most recently in May 2010, leaving a revolving bank balance of $10 million, with $8.5 million now remaining.
According to Moody’s, Collingswood officials have requested the lender, Thrift Institutions Community Investment Corp., extend the maturity date by one year, but the lender wants the borough to first reduce the balance to $4 million. Collingswood is introducing a bond ordinance that would allow it to issue$4.5 million bond anticipation notes, which the borough would use to purchase unsold condominiums and pay down the balance to $4 million.
The borough is now negotiating an immediate extension of the loan for one month to Nov. 7, to give it time to adopt its bond ordinance. “If this immediate extension is not granted, it is uncertain whether the borough will meet its obligation, as the borough does not have sufficient cash on hand to pay the $8.5 million that would be due,” Moody’s said.
In addition, Collingswood has two unrelated BANs of $2.65 million that mature on Sept. 29, which the borough intends to roll over. “With $1.24 million in cash as of the last audit [Dec. 31], the borough will need market access to meet these payments as well,” the rating agency added.
Mayor James Maley on Tuesday called Moody's downgrade "very disappointing." He added: "We're not given a fair picture. There's an agreement in place; it just hasn't been memorialized in writing."
Moody’s acknowledged Collingswood’s history of positive equalized value growth through redevelopment efforts as a credit strength, while it saw “significant enterprise risk and guaranteed debt exposure” among its challenges. The agency also cited the borough’s high unemployment and declining population. Collingswood’s unemployment rate as of June was 11%, compared with a statewide 9.7%.
Moody’s expects to complete its review within 30 days.
