City officials exploring the purchase of Gilroy Gardens Family
Theme Park are devising a plan to
”
make a good deal even better.
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Gilroy – City officials exploring the purchase of Gilroy Gardens Family Theme Park are devising a plan to “make a good deal even better.”
The proposed $12.4 million purchase of the nonprofit theme park, nestled among the foothills in west Gilroy off Hecker Pass Highway, has been hailed as a way to prevent the 536 acres from falling into the hands of developers. Though the sale price has been called a steal by city officials, they are hoping to get an even better price by convincing antsy investors to sell back their bonds at a discount.
“I’m not terribly optimistic we’ll get any involvement,” City Administrator Jay Baksa said at a Tuesday morning press briefing. “However, if it happens, you make a good deal even better.”
The plan would also give the city immediate title to the park’s land and assets, without any obligation to cover the park’s losses. The deal requires officials to set up an account with enough money to pay off the park’s debt and cover interest payments. Officials plan to offer investors the option to tender, or sell back, their bonds at a rate less than their face value. Even if bondholders refuse to sell their holdings at a discount, locking in the buy-back funds would allow the city to take full control of the land.
The plan differs from ideas put forth after the deal was announced in March. At that time, officials suggested the possibility of buying debt incrementally from investors until November 2010, when the bonds become “callable” and the park would have the right to buy back its debt regardless of investors’ willingness to sell.
The looming pressure of debt payments inspired park officials to propose the historic deal earlier this year. The Hecker Pass park has turned a profit in recent years, but park officials remain worried about a November 2008 deadline to boost reserve funds from $438,000 to $1.3 million. If they fail to meet the mark, they could find themselves at the mercy of creditors.
The park, which changed its name in February from Bonfante Gardens Family Theme Park, is in its seventh season and has enough money to pay creditors through most of next year, park officials have said.
Joel Goldsmith, vice president of the nonprofit park’s board of directors, welcomed the latest proposal to remove the park from the reach of creditors.
“By doing that, (the city) gets to act as in fact they have bought it,” he said. “I think that’s much better than buying part of it and being a partial owner, and figuring out what to do with the park under those circumstances.”
The $12.4 million in bonds investors now hold yield an 8.15 percent interest rate, and it remains unclear how many bondholders will sell back the debt at discounts, given the above-average returns they now receive. Two bondholders have expressed interest so far, Mayor Al Pinheiro said Tuesday, but he would not name them or any other investors in the park.
“To take a discount on an 8.15 percent interest rate in a 4-percent market is not too bright,” said Ken Dekker, a Carmel investor who holds $300,000 in Gilroy Garden bonds.
He said the park reaped a “windfall” in 2005 when it went through a financial restructuring that reduced its debt load from $70 million to current levels. The park paid investors willing to sell 83 cents on the dollar as part of that deal.
Dekker has no plans to sell this time around, but he predicted that not all bondholders would follow suit.
“A lot of people are uninformed,” he said. “A lot of people will panic, and ‘X’ amount of people always need money at any given time, so the city is hoping to collect a windfall.”
But the main concern for the city, Pinheiro said, is finding a way to scrape together the $12.4 million. That could take the form of floating a municipal bond, borrowing from city reserves, or some combination of the two, according to city officials. The bond would not require voter approval.
No decisions have been made about the fate of the land. Some city leaders have called for preserving the land as the city’s equivalent of Golden Gate Park; others have left the door open to selling off the park’s rides and other assets and even allowing portions of the land to be developed.
In the event of a city purchase, Pinheiro said the city may appoint a second board member to the park’s seven-member nonprofit board. The board already has one council appointee, though officials said the second member may be a city department head rather than an elected official.
The long-term fate of the park, Pinheiro added, would be decided by a committee charged with developing a master plan for the site. During that process, expected to last two years, the city could leave the park’s management in the hands of Gilroy Garden’s nonprofit board, freeing City Hall to study the park’s operations. That study, in turn, could help decide whether or not to continue operating the park and how to budget for the costs of updating its equipment, said Assistant City Administrator Anna Jatczak, who worked with bond experts and legal counsel to draft the current plan.
“We still have to look at what that relationship between Gilroy Gardens and the city will look like,” Jatczak said. “As the nonprofit operates the park, we can learn about the costs and expenses. We kind of know what bodies of expertise are needed. It’s just, is the city willing to take that on as an actual core service for the community. I’m not sure what that answer is.”
Council will review the final details of the purchase plan during a July 9 closed meeting. They will hold a July 11 public hearing so residents can voice their opinion on the proposed deal.
