The Squamish Oceanfront Development Corporation (SODC) debt for the 60-acre Oceanfront Lands is having a big impact on the district’s long-term borrowing capacity, according to district staff.
The SODC, a municipal corporation that operates separately from the district, contracted about $11.4 million in debt in 2012 in order to, among other things, undertake environmental cleanup of the former industrial Oceanfront Lands and to develop the Oceanfront Sub-Area Plan.
The district guaranteed the SODC’s loan.
Legally, a municipality can tie up only 25 per cent of its revenue for borrowing. The district is currently at 21 per cent because of the nature of the SODC loan repayment requirements, according to Joanne Greenlees, general manager of financial services at the district.
The deal between SODC and the bank in 2012 was for bridge financing until SODC got a transaction on the Oceanfront Lands, Greenlees said.
The district guaranteed $8 milllion of the debt and the land was mortgaged for
$3 million.
The whole debt is to be paid back through $3 million balloon-payments made in May of 2014 and to be made in May 2015, and a $5 million payment to be made in May 2016.
Because of the size of the repayments the district is now in a tight spot, unable to borrow much for future projects.
“It is a temporary pinch point until that debt is extinguished,” Greenlees said.
She said a good analogy would be if a person took out a line of credit that had to be paid off in three years, instead of a 20 or 25-year mortgage.
“If you were into a contract where you had to pay that off in three years and you went to get another loan, you are not likely going to get approved for a loan because the bank is going to say, you have big commitments here to come up with this big amount of cash in this short period of time,” she said.
That is the situation the municipality finds itself.
If the $15-million deal currently under negotiation for the Oceanfront Lands goes through by the end of this year, the district will be able to pay off the SODC loan payment completely and will be in the clear.
“We wouldn’t have to do a thing,” she said.
If the deal does not go through in time to assure the debt is wiped off the books by Dec. 31 of this year, “then the district of Squamish is in a real bind with respect to borrowing because the balloon payment of $5 million next year will likely not allow us to borrow any more money for our capital program,” said Greenlees.
Regardless of what happens with the deal, Greenlees said, the district is looking at fall-back plans that could include the district going to the public for permission to take out a traditional, longer-term loan that would allow the district to lend SODC the money to pay off the entire debt for SODC by the Dec. 31 deadline. Under that scenario, if the Oceanfront deal fell through, SODC would owe the district the approximately $11 million plus interest, but that could easily be financed over time and would not unduly impact the district’s ability to operate, according to Greenlees.
She said a report on fallback options is expected soon.
The issue of the district’s borrowing authority was discussed at the finance and audit standing committee on Jan. 27.
“I don’t think we really realized how it would impact our borrowing,” Mayor Patricia Heintzman told the committee. “We thought because it was against the land and all sorts of other things, that it wouldn’t impact our borrowing.”
“In hindsight, we should have restructured that loan long ago.”
In August 2014, the District of Squamish, Matthews Southwest (MSW) and Bethel Lands Corp. came to the final purchase and sale agreement on waterfront land. Most of the documents associated with that agreement are to be completed by this spring.
