CHICAGO -- Bondholders of Polk County, Iowa, sports facility revenue bonds will receive a 5% decrease in their June 1 interest payments due to legal and administrative costs incurred by the bond trustee, according to a letter sent to bondholders this month.
In the letter, the trustee, First Trust National Association of St. Paul, Minn., states that the costs resulted from its involvement in a lawsuit relating to the bankrupt Prairie Meadows racetrack. The letter also says that the bond indenture does not require the trustee to risk its own funds for legal services.
On May 6, First Trust filed a complaint in bankruptcy court claiming that a Polk County District Court decision in March should be voided. That decision invalidated a lease-purchase agreement between the county and the owner of the racetrack, the Racing Association of Central Iowa. The trustee's lawsuit alleges that an automatic stay of the association's funds when the racetrack declared bankruptcy in November should have been lifted before any actions were taken against the association, according to Don Neiman, an attorney for First Trust.
Though the racetrack is owned by the racetrack association, Polk County has a lease-purchase agreement with the association to provide the difference between the $4 million annual debt service on the bonds and track revenues derived from a 6% wager tax.
Polk County issued $40 million of sports facility revenue bonds in 1984 to build the racetrack and remarketed the bonds under the lease-purchase agreement in 1987. The county is actively seeking to refinance the debt by exercising a provision in the bond indenture that would allow for an early payment of the bonds.
In the District Court decision issued in March, Judge Richard Strickler ruled that the lease-purchase agreement was invalid because the county had failed to give proper public notice before the county board of supervisors approved the agreement in 1986. He also enjoined the county from making further lease payments.
But First Trust claimed that Strickler's ruling should be voided on the grounds it violated an automatic stay of the racetrack association's assets. Claiming that all further litigation concerning the lease-purchase agreement should be handled in federal bankruptcy court rather than Iowa state courts, First Trust filed a complaint in bankruptcy court requesting that the court declare Judge Strickler's ruling void as a violation of the automatic stay. The complaint was filed against B.F. Riley, a Des Moines attorney who filed the lawsuit that led to the judge's ruling.
Meanwhile, Polk County officials have said that Judge Strickler's ruling could be rendered moot if the Iowa Supreme Court affirms an appeal by anti-gambling activists, who also have sought to void the lease-purchase agreement between the association and the county. An Iowa Supreme Court decision is expected next month.
The anti-gambling activists' lawsuit claimed that the lease-purchase agreement violated state law prohibiting a government unit from pledging its taxing powers to pay debt service on industrial revenue bonds issued for the benefit of a private entity. A Polk County District Court judge ruled against the activists last June.
Paul Stanfield, one of the activists, filed another lawsuit in February to prevent Polk County from issuing general obligation bonds, which county officials want to issue to pay off their annual debt to the racetrack association.
Mr. Stanfield said the lawsuit claims that state law does not allow the county to issue GO bonds to directly or indirectly refinance debt for sports facility revenue bonds.
James Koolhof, the county's manager, has said a calamity clause provision in the bond indenture for the sports facility revenue bonds would allow the county to issue the GO bonds. The county would then turn over the proceeds to the racetrack association, which would then pay off holders of the revenue bonds, Mr. Koolhof said.
The first step toward exercising that provision took place on Nov. 26, when the county board of supervisors voted not to provide an operating subsidy of up to $5.5 million for a racing season this year. The racetrack association filed for bankruptcy the following day.
By exercising the calamity clause provision, the outstanding revenue bonds could be redeemed prior to the Dec. 1, 1997, optional call date.
Prairie Meadows officials have said they could not operate the track without subsidies from the county. The track, which is currently offering only live simulcasting of races, has never been able to support itself since it opened in 1989 and has only been kept afloat by the $9.3 million in county subsidies it has received since then, county officials have said.
By cutting the subsidy, the county is forcing the closing of the racetrack it financed and triggering an early redemption. That would enable the county to get a better interest rate by issuing GO bonds to redeem the sports facility bonds, said some public finance officials.
Mr. Koolhof has said that refinancing the outstanding bonds could reduce annual debt by $700,000.
