CHICAGO -- Chicago-Calumet Skyway bondholders have filed a petition in federal court to force Chicago to redeem $5.4 million of the $101 million of bonds the city defaulted on in 1963.
Ken Purcell, an associate attorney at Winston & Strawn, the law firm representing the bondholders, said the petition filed Friday in U.S. District Court for the Northern District of Illinois, marked the first time in the 19-year-old history of skyway bondholder litigation against the city that the bondholders have gone to court to force a redemption of the bonds.
He said the bondholders' latest legal action was based on a May 24 federal court ruling ordering the city to place $5.4 million, plus any excess, unbudgeted funds uncovered by an outside audit of the skyway's fiscal 1990 finances, into a sinking fund.
Mr. Purcell said the placement of the money into the sinking fund would have been a sufficient amount to trigger the redemption of $5.4 million of bonds on July 1, the first interest payment date following the court ruling.
Under the city's bond ordinance, when the sinking fund contains $50,000 or more, bonds are to be called and redeemed "so as to exhaust as near as possible all money in the sinking fund account," the petition stated.
Sources familiar with the skyway bonds said that as of yesterday no money had been placed in the sinking fund. One of the sources added that the city did not have enough time to give bondholders the necessary 30-day notice of a tender offer by the time the fiscal 1990 audit was completed on July 1, the same date as the interest payment date.
That source contended the city needed to know how much excess money was uncovered by the audit before the city could comply with the judge's ruling.
Andrea Swearingen, a spokeswoman for the city's law department, verified that the fiscal 1990 audit had been completed. She declined, however, to comment regarding the city's stance on the bondholders' petition.
"If the city says it doesn't have any money in the [sinking fund] account, [the city] will have great big problems with the court," Mr. Purcell warned.
He added that the bondholders would probably object if the city contends that it did not have enough time to put together a redemption plan by the July 1 interest payment date. "Five weeks is well enough time," he stated.
A decision from Judge James B. Moran on the bondholders' petition was not expected for two months, Mr. Purcell said. The next possible date for the city to redeem the bonds or place a tender offer in the open market would be Jan. 1, the next interest payment date.
Since 1972, bondholders have been in court mostly fighting the city for toll increases to squeeze more money out of the beleaguered 7.8-mile toll road connecting the southeast side of Chicago with the northwest corner of Indiana. The city is currently fighting the bondholders' most recent request to raise passenger car tolls to $2 from $1.75.
Mr. Purcell said that successful past attempts by bondholders to raise tolls led to excess money being available for the sinking fund payments ordered by the court.
The Calumet Skyway bond default was one of the most notorious in the municipal market. The skyway originally sold $88 million in bonds in 1954. A further $13 million were sold in 1957. Because of lower-than-expected traffic, the bonds defaulted in 1963. While the city has paid all past due interest on the bonds since 1989, it has yet to place any money in the sinking fund.
Meanwhile, responsibility for the skyway and its defaulted bonds continues to be an issue whenever the Illinois General Assembly considers new toll road projects for the State Toll Highway Authority. Last week, attempts to authorize about $3 billion of tollway projects financed with revenue bonds failed after House Speaker Michael Madigan, D-Chicago, tied the authority's takeover of the skyway to the legislation.
"I don't think a lot of people wanted to vote for that," said State Sen. Thomas Dunn, D-Joliet, a sponsor of one of the tollway bills.
However, Robert Hickman, the authority's executive director, said he doubted that Mr. Madigan's influence had anything to do with the tollway bills' inability to get approved during the state Legislature's budget deliberations that lasted 19 days into the state's new fiscal year.
If the tollway bills came up again during the Legislature's veto session in November, Steve Brown, a spokesman for Mr. Madigan, said the speaker would once again call for the skyway to be included in any tollway legislation.
"[The skyway] is a tollroad and it ought to have been part of the toll road system to begin with," he stated.
