ATLANTA -- The fate of $16 million of industrial development bonds backed by the Tampa, Fla., Port Authority is now in the hands of the federal courts, following a recent bankruptcy filing by the faltering shipbuilding company responsible for covering debt service payments.
On Nov. 4, the American Ship Building Co. asked the U.S. Bankruptcy Court for the Middle District of Florida for Chapter 11 protection from its creditors.
The filing came just days after the U.S. Navy refused to reconsider its August cancellation of the company's main source of income, a $176 million contract to complete two oil refueling ships. On Oct. 28, the Navy rebuffed American Ship's main shareholder, George Steinbrenner, with an announcement that its decision to pull the contract was final.
Under Chapter 11, American Ship is shielded from creditors, including the Port Authority, until it can work out a plan with the bankruptcy court to cover its obligations.
Among the obligations is $16 million of bonds remaining from a $23 million IDB issue sold in February 1977 by the Hillsborough County, Fla.. Port District through a syndicate led by J.C. Bradford & Co. The bonds, which were guaranteed by the Tampa Port Authority, financed a dry-dock facility owned by the authority, but leased to American Ship.
The bonds included two term series: 7.75s maturing Aug. 1, 1999, and 8s coming due Aug. 1, 2006. The non-rated borrowing made its last interest payment, which was due Aug. 1.
Tom Denham, spokesman for American Ship, said Wednesday that the company is putting together its proposed reorganization plan. Denham referred further comment to Harley Riedel, the firm's bankruptcy attorney. Riedel did not return phone calls left at his office.
At a Nov. 4 press conference announcing the bankruptcy filing, company officials said that American Ship had about $30 million in liabilities, comprising the $16 million for the bonds, less than $10 million to creditors, and $4.2 million for a loan to Nationsbank. Officials also said that they would file a motion to force the Navy to reinstate the contract.
Steinbrenner, the company's chairman and largest stockholder, was not present at the press conference, but issued a brief statement.
"I will be involved financially in the reorganization of the company in an effort to fairly and equitably deal with the creditors' claims and to preserve stockholders interests," Steinbrenner said.
A spokesman for the bankruptcy court declined comment.
Joe Valenti, the Port Authority's executive director acknowledged Wednesday that his agency is on the hook for the bonds, but under the bond indenture can only use "net uncommited non-ad valorem revenues" to cover them.
Valenti said that this means the 0.5 mill property tax that the Port Authority has the right to assess would not be available to pay off the bonds.
"To the extent that the Port has any liability, we will cover it -- but in our minds that liability has yet to be determined," Valenti said.
One solution to the problem of paying debt service on the bond issue. he said. would be for another company to take over lease payments that had been made by the shipbuilder. Any transfer would be subject to approval by the bankruptcy court.
Valenti said he would contest any court decision to impound the debt service reserve fund.
According to a recent notice to bondholders from the trustee. First Bank of Milwaukee. the August interest payment required withdrawing $504,019.72 from the debt service reserve fund, leaving a balance in the fund of $1,604,416.
First Bank also said that a demand has been made to American Ship Building Co., as guarantor, and to its subsidiary, Tampa Ship and Dry Dock Co., as lessee, to cover monthly delinquent lease payments for June through October totaling $847,976.06. In addition, the trustee said that the Tampa Port Authority has been asked to appropriate amounts sufficient to pay the bond's next two debt service payments, which come due on Feb. 1 and Aug. 1, 1994.
"This notice is not a notice of default with respect to the bonds, but rather a notice of default under the lease," the trustee said. "Continued default under the lease will result in an event of default under the Indenture which could result in acceleration of the bonds."
The interest payments due next year are about $650,000 each, according to the trustee. In August, there is also a principal payment of $750,000 due.
Despite the uncertainty over the fate of the bond issue, its price has risen steadily in moderately active trading over the past several weeks.
Curt Darling-Smith, regional trading manager at Wolfe & Hurst Bond Brokers Inc. in West Palm Beach, Fla., said yesterday that both series of bonds have been trading in the "low-to-mid 80s," after having fallen into the 60s around the time of the Chapter 11 filing.
"I think people feel a little better now that they have had a chance to think about the situation," Darling-Smith said.
Investors are aware not only of the Tampa Port Authority's obligation to repay the debt but also of Steinbrenner's intention to revive the company, Darling-Smith said.
In addition, he said that because the Tampa Port Authority is hoping to come into the market with an issue in the relatively near future, bond buyers assume that it would not risk being saddled with a bad reputation should the issue default.
"The feeling is that they will do what they have to do to cover this issue," Darling-Smith said.
Another trader in Florida, however, took a different perspective. "These bonds are by no means out of the woods," he said. "I think buyers that automatically assume they will be covered could be in for a surprise."
The Navy awarded the oil tanker contract to American Ship in 1988 after a Pennsylvania shipyard that had been building the vessels went bankrupt.
"I regret very much the impact on shipyard workers," Navy Secretary John Dalton said in a statement Oct. 28 justifying his final decision to end the contract with American Ship. "As a steward of the taxpayers' dollars, however, I cannot justify continuing this shipbuilding program."
Dalton said the decision followed a review which concluded that American Ship, given its financial uncertainty, did not have the resources to finish the project. The review also questioned the need for the ships at a time when the Navy is downsizing its operations.
The shipbuilding company has been under financial pressure since the mid-1980s -- it has lost about $50 million in the past seven years -- as its efforts to diversify into into nongovernment work, including repairs, cruise ships, and seafood processing ships, have failed to generate much revenue.
