After the downgrade, Vancouver must pay more to borrow money
Christina Montgomery
Province
The $750-million Olympic Village is now the $875-million Olympic Village. It is scheduled for completion by November. Photograph by: Gerry Kahrmann, The Province
Vancouver‘s credit rating — and its ability to borrow money cheaply — took another hit Friday over its role in financing the billion-dollar Olympic Village.
At least one reputable ratings agency says the downward pressure on the city’s ratings won’t ease for 12 to 18 months, pending some sign that condo sales in the housing will go well and the city can recover its investment.
DBRS, a Toronto credit-rating agency, announced Friday it was downgrading the city’s rating from AA (high) to AA in a trend that is “now negative,” it said.
The change came just days after the city began to draw on a line of credit set up to buy out the previous lender for the False Creek housing project and take over financing to Millennium, the developer.
The city has already shovelled more than $450-million into the project.
The city’s involvement “is expected to boost debt substantially” and there is “significant uncertainty regarding the financial outcome of the project,” the DBRS announcement said.
In late January, when ratings agency Moody’s dropped the city’s ratings, Mayor Gregor Robertson estimated that a single drop in the rating could potentially cost the city $250,000 to $300,000 in interest charges on each $100 million of money it borrows.
The better the city’s credit rating, the cheaper the interest rates lenders offer.
The project, an 1,100-unit multi-building complex, will house athletes and officials during the 2010 Olympic Games.
Some 250 units are to be used as social housing and 850 market units sold after that.
The project has grown so costly that city council voted this week to study ways of managing the cost of the social-housing and affordable housing units — and whether they are still viable at all in the project.
The Olympic Village budget was originally set at $750 million, excluding land costs. It has since jumped by about $125 million.
DBRS’s announcement confirmed that sales of the units “could help reduce debt to more manageable levels and replenish reserves,” but said “considerable uncertainty remains with respect to the city’s ability to prevent further deterioration of the project, the extent of the debt financing needed beyond the $400-million project and the value to be realized from the sale of the housing units.
“As a result, the downward pressure on the city’s rating is expected to remain high over the next 12 to 18 months.”
This week, the city secured a $400-million line of credit, $90 million of which it tapped to buy out the original lender.
It also used $240 million from its cash reserves to help with the buyout. In addition, $134 million in construction advances have been made to Millennium since September, when the New York-based lender Fortress stopped the flow of loan money.
Vancouver‘s total investment in the project is now $464 million, leaving more than $400 million in additional funding required to complete the project by the November deadline, according to DBRS.
The agency says that tax-supported debt is expected to grow well beyond $2,000 per capita by the end of 2009, including Vancouver‘s share of net debt held by the regional transit authority.
DBRS is the third credit-ratings agency to fret publicly this year about the city’s financial involvement in the Olympic Village.
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