Consumers who borrow money — a credit card, for example — and are late on a payment can expect a minor downgrade in their credit score; stopping payments altogether until default clobbers their ability to get another loan.
Platte County is coming close to similarly defaulting on its obligations on debt that supports the Zona Rosa shopping center, a move that would cost the county in steep interest rates if it borrows money in the future — if it can borrow at all.
Platte County’s credit scores are in a tailspin this month after two credit ratings agencies learned of an Aug. 20 meeting of the county’s elected commissioners in which they discussed the possibility of skipping out on a scheduled Dec. 1 debt payment on the troubled Northland shopping center.
The Platte County Commission budgeted for the possibility of covering the $500,000 debt payment later this year, but the three-member commission has said it is considering walking away from that obligation.
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On Sept. 7, Standard & Poor’s downgraded Zona Rosa’s bonds, for which there is $29 million outstanding, by an unusually steep 10 notches from A to B-. Last Friday, Moody’s docked Platte County’s general obligation limited tax rating from Aa2 to Ba1.
In Platte County’s case, its credit ratings cascaded from strong scores to non-investment grade, or what is usually referred to as “junk” status.
The result: Much like a consumer who has a poor credit score, Platte County may end up paying much higher interest rates when issuing certain types of debt, such as for infrastructure to support development projects.
“The downgrade reflects the Board of Commissioners’ publicly stated unwillingness to appropriate for the series 2007 Zona Rosa bonds,” said Standard & Poor’s Global Ratings credit analyst Blake Yocum, according to the agency’s report on Platte County. “We became aware of the board’s unwillingness to pay debt service through annual appropriations upon hearing the audio of a recent county commission meeting.”
In 2007, the Platte County Industrial Development Authority issued bonds to help pay for a parking garage at the shopping center near Interstate 29 and Barry Road that opened in 2004 and was referred to at the time as the Country Club Plaza of the Northland.
In order to get better borrowing terms, Platte County officials at the time said it would consider making up the difference to investors in the event that the project did not generate enough taxes to pay annual debt payments. It’s a situation similar to the Power & Light District in downtown Kansas City, where the city each year spends more than $10 million in taxpayer funds to fulfill debt payments to investors, because the entertainment district can’t sell enough to cover the obligation on its own.
Zona Rosa, like some other bricks-and-mortar shopping centers, has had a difficult time competing with online retailers and has fallen on difficult times. The development went into default on its mortgage last year after spending down a $500,000 letter of credit and failing to obtain a new one.
During its Aug. 20 meeting, commissioners said that the county is not legally required to put taxpayers on the hook for the payment to Zona Rosa’s debt.
The commissioners were dismayed at the credit ratings agencies.
“Moody’s repeatedly states in their report that the County has a lack of willingness to pay, which again is a clear misrepresentation of our position,” said Platte County Presiding Commissioner Ron Schieber in a written statement. ”As stated in a May press release, we are on record as saying that, ‘Until a long-term, sustainable solution is found, we see no reason to use good Platte County tax dollars to subsidize an east coast developer.’ ”
Standard & Poor’s warned that if the county skips the Dec. 1 payment, the agency expects a default on the Zona Rosa debt, which would plummet the county’s credit ratings even further.
“Although the payment was already appropriated in the fiscal 2018 budget, the three-commissioner board must vote to approve the payment, which they have stated they may not be willing to do,” Standard & Poor’s Yocum said.
John Elliott, a Platte County commissioner, said on Monday that the county hasn’t made a decision on whether it will make the upcoming debt payment.
“What was stated in the August meeting individually by each commissioner was that without a long-term sustainable solution he or she was not inclined to make the payment,” Elliott said. “As of (Monday afternoon), a long-term sustainable solution has not been presented. Fortunately though, the payment is not due until Dec. 1. Lord willing, a long-term sustainable solution will be worked out by then.”
The ratings agencies said the county could eventually improve its damaged credit score if it goes ahead and fulfills the payment, and keeps doing so until 2032 if revenue shortfalls occur.
Zona Rosa was recently sold from New York’s Olshan Properties to TPG and Bank of America Merrill Lynch. As of Monday morning, Fort Worth, Texas-based Trademark Property Co. took over management of the 1.1 million-square-foot Zona Rosa shopping center, where tenants include Old Navy, Dick’s, DSW and Barnes & Noble.
Trademark Property Co. would not comment on the debt payment situation on Zona Rosa.
“Zona Rosa is a popular destination in north Kansas City and we are excited to help write the next chapter of its story and come up with ways to better serve its market,” said Terry Montesi, chief executive of Trademark Property Co., in a written statement. “We have a strong track record of uncovering the hidden potential in these types of complex properties, and we see a big opportunity at Zona Rosa.”