May 22--Myrtle Beach officials say it is too early to know what impact a dispute between a national bank and the developer of The Market Common retail and residential development might have on city-backed bonds used to help build the project.

"There are just too many ifs involved and no answers to all of the questions," said city spokesman Mark Kruea.

Meanwhile, the defaults could scuttle attempts to provide rent relief to the project's restaurant and shop owners, who say slow sales have made it difficult to keep up with their payments.

JP Morgan Chase, which provided construction funding for The Market Common, issued two loan default notices over the past month to project developers McCaffery Interests Inc. and its financial partner, Leucadia National Corp.

The developers are disputing the defaults and say the notices are part of a game of financial hardball being waged with the bank as the construction loan nears its Oct. 10 maturity and possible extension.

The developers said they will explore all options, including a possible bankruptcy filing.

The defaults ultimately could affect $30.8 million worth of tax increment financing bonds the city issued in 2006 to pay for roads and public infrastructure, according to a notice issued Tuesday by bond administrator Municap Inc.

"We're approaching it methodically and not jumping to any conclusions," said Mike Shelton, the city's budget director.

The bonds are supposed to be repaid from property tax collections that will increase in coming years as development occurs at The Market Common and land values rise.

If tax collections don't cover the debt payments, the city can charge property owners an extra fee to make up the difference as part of the municipal improvement district created at The Market Common.

The project's ability to pay off the debt has not yet been tested. That's because the city has been using a reserve fund created as part of the bond issue to make interest payments since 2007. The first payment using property taxes -- about $2.1 million -- is scheduled for next year.

Shelton said it also is too early to tell whether the property taxes generated by new development will cover the bond debt. Most of the shops, restaurants and homes in the project opened in 2008 and their initial taxes will not be collected until this fall.

Since the bonds are tied to property taxes and the improvement district levy, the city would not be obligated to use any other source -- its general fund, for example -- to pay them in the event of a default.

In the worst case scenario of a developer's default, the city could obtain a tax lien on the property and use proceeds from a sale to pay the debt.

Shelton said the city does not expect that to happen.

Slow sales over the winter prompted more than one-third of the project's 57 tenants to ask McCaffery Interests for a break in their monthly rental payments.

The JP Morgan Chase loan lets McCaffery Interests grant such assistance for tenants occupying 5,000 square feet or less, which includes all but four of those asking for help.

The loan defaults, however, may prohibit McCaffery Interests from granting relief to any tenants without prior bank approval, according to Tuesday's notice.

Many tenants have -- without the developer's permission -- already started paying a fraction of the rent called for in their lease agreements, according to the notice.

Lois Weatherford, co-owner of The Big Tuna specialty shop, said business had been slow through the winter but improved somewhat in April.

"There were some days when we didn't have anyone come into the store," she said.

Retailers say they are hoping business picks up over the summer.

"We've faced some challenges because it's the worst economic times since the Depression," said Izzi-b owner Lydia Solazzo.

"But we had a great summer last year, and it looks like we'll have another great summer this year."

The Sun News staff writer Josh Dawsey contributed to this report.

Contact DAVID WREN at 626-0281.

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