A plan that would provide a $1.7 million line of bank credit to shore up the faltering finances of the Salt Lake County Regional Service Area will to go the district's board of trustees for approval Wednesday night.
The board, which operates the Oquirrh Park Fitness Center, will meet 7 p.m. at the tennis court clubhouse, 5624 S. 4800 West.Most of the details of the 10-year loan package, arranged through Zions First National Bank, were aired during a special board meeting April 21.
The money will be used to complete an $11 million addition to the fitness center and provide operating and maintenance money for the balance of the year.
If trustees don't approve the line of credit, the district is expected to run out of money in May and would not be able to open its new facilities in early June.
Kent Michie, a vice president and financial adviser for Zions, described the loan as "a line of credit - but not a revolving line" that can be borrowed by the district as needed.
The bank loan will carry a variable interest rate of three-quarters of a percentage point above the prime rate, and the service area would make quarterly installment payments of about $60,000.
"That's approaching a quarter of a million dollars annually," said board chairman Doral Vance. "No small potatoes."
To help offset some of the debt and operational expense, the board also is looking at the possibility of allowing the county or possibly private business to sublease parts of the center.
Michie said the bank probably would agree to that arrangement "as long as it doesn't become a big part of the revenue stream.
"We just don't want the center turned over to become a moneymaker for a private sports company," he said, noting that could endanger the tax exemption the bank will get in issuing the loan for a public purpose.
The loan collateral would be the existing fitness center plus the expansion. Not included are the speed-skating oval or vacant fields to the south of the center that are owned by the service area.
Under a creative financing package, the district will lease the collateral property to the bank, which will would sublease it back to the district with interest.
Service area attorney Mark Anderson stressed the title to the Oquirrh Park property will remain with the district.
"We are the landlord of the bank and the bank is our landlord," the attorney explained, "and we are their tenant under the lease-back agreement."
Michie said if interest rates climb in the future, the service area will have an opportunity to refinance the initial $5.5 million in bonds sold for the expansion.
If rates are favorable, he said, a refunding bond could consolidate both the outstanding bond debt and the line of credit with a single payment no larger than the existing payment.
That's not an option at this point, Michie noted, because the district has been going through "a stressed period" in which it has failed to submit annual audits, fired its executive direct and undergone a major reorganization.
The banker said if a bond rating company evaluated the district now, "we probably have a down-rating on our hands."
But with a couple of years of good audits and solid fund balances, he added, the district may restore the A Rating it had when it issued the initial $5.5 million in bonds for the addition.