California Authority to Refurbish Racetrack With $60 Million Commercial Paper Foray

LOS ANGELES - The Del Mar Race Track Authority plans a $60 million program of taxable commercial paper bond anticipation notes to renovate a horse track launched in the 1930s by singer Bing Crosby and actor Pat O'Brien.

California localities have issued taxable commercial paper before, but the imminent deal would mark the first time a Golden State instrumentality has entered the market, according to Robert J. Larkins, a vice president of the dealer for the paper, Morgan Stanley & Co.

California, however, is not liable for payment on the notes. Rather, the notes are special limited obligations of the authority and are secured by revenues from rent, concessions, and satellite wagering. On top of that, Societe Generale is providing an irrevocable direct-pay letter of credit.

Based on the letter of credit, Moody's Investors Service rates the notes P-1 and Standard & Poor's Corp. rates them A-1-plus.

The Del Mar authority, which was formed expressly to finance the project, was created jointly by the State Race Track Leasing Commission and the 22nd District Agricultural Association. California owns the track, acting through the commission and the association.

The flourishing racetrack is operated under a 20-year lease with the Del Mar Thoroughbred Club, which was organized in 1968 to run the horse race meetings. Although the club is legally required to be organized as a for-profit corporation, the lease is structured so that club profits be paid to the state or otherwise committed to the improvement of Del Mar's facilities.

The current configuration of the lease with a private operator blocks the authority from selling federally tax-exempt securities, Mr. Larkins said.

A spokesman for Thomas Hayes, who serves as chairman of the state track commission by virtue of serving as California's finance director, noted that legislation on the governor's desk would allow alternations in the Del Mar lease that might permit a tax-exempt sale in the future. The spokesman said the tax exemption would likely be used for eventual long-term financing that takes out the notes.

Taxable commercial paper offered the authority the greatest flexibility and was the "cheapest way to go," Mr. Larkins said. Initial issuance of about $5 million in paper is planned within two weeks, Mr. Larkin said, adding that institutional investors such as corporate treasures and money market funds will be potential buyers. Some high net worth individuals also might be attracted to the issue because interest on the notes is exempt from California personal income taxes, he said.

Proceeds from the note issue will help fund the Del Mar Grandstand Replacement Project, which entails demolishing the existing 9,500-seat grandstand and constructing a new 15,000-seat facility. A new administration building and a receiving barn also will be funded. The race track is located on the Del Mar Fairgrounds, located near San Diego.

The replacement project is scheduled for completion in 1994. Contractors will coordinate the construction program around the summer's 43-day racing season. Half the grandstand will be demolished initially, while the other half will be taken down once part of the new grandstand is completed.

Del Mar opened in 1937, but fell into disrepair during the 1960s because of slow attendance growth. The state track commission was formed shortly thereafter and helped to revitalize the facility. In 1990, the Del Mar track's average daily betting and attendance rank among the highest nationally for horse tracks. The authority will have the option in 1994 to either extend the commercial paper program or to sell bonds for permanent financing.

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