After downgrading Collingswood’s credit rating to junk status in September — and standing by its decision in November — Moody’s Investors Service upgraded the borough’s rating to its lowest investment grade on Thursday.
According to Moody’s, the agency originally downgraded Collingswood’s rating below investment-grade status in response to the borough’s increased risk of defaulting on an $8.5 million loan — nearly half of its $16.7 million annual budget — for the struggling LumberYards Condos development project.
But Mayor Jim Maley said, even with the poor rating, the borough successfully refinanced its debt on the project by selling a $5.1 million bond anticipation note on May 1 — 30 days before the full obligation of $4.5 million was due to the lender.
“Nothing changed on our end. All that changed was that (Moody’s) got a better understanding of what condition the town and the project is in,” Maley said. “Moody’s should have been giving me a gold star, not downgrading us.”
When Lumberyard Redevelopment LLC agreed to build the LumberYard project in 2006, it included 119 condominium units and 21 commercial units in four phases. But the recession’s crippling impact on the real estate market meant only 67 units were built, 54 of which have been sold.
According to Moody’s report, Collingswood used the note’s proceeds to dissolve its guarantee and purchase the unsold units, three of which currently are being rented. The borough plans to use funds from apartment rentals and condominium sales to pay down portions of the principal.
Moody’s spokesman David Jacobson said while the borough plans to pay the principal and interest due on the note from tax revenue, the “enterprise risk for the project remains because the borough is dependent on the LumberYard sales for payment,” noting that Collingswood’s first payment is due next April.
“The borough still has a high-debt obligation. It needs capital markets to refinance the note,” Jacobson said. “That’s baked into the new rating. It’s something we’re very aware of.”
Maley said he’s confident the Moody’s upgrade will allow the borough to successfully market and sell the remaining units, and he expects to complete construction on 90 new apartment units within the development by the end of the year.
“We’re completing the plan I announced back before Labor Day. It was delayed a few months because of the rating,” Maley said. “But we’re hard at it now. We have all the deals signed to ensure that the rest of the project will be completed.”