LOS ANGELES - Riverside County, Calif., Assessment District No. 159 could fall into technical default early next year if it is unable to cure delinquencies in the district.
Bondholders would receive their interest and principal payment in March 1994, but the district would be forced to tap a reserve fund to meet the debt service.
Timothy Davis, deputy counsel for Riverside County, said a principal and interest payment due bondholders this month is being met and the reserve fund will remain fully funded because the county "has been able to utilize interest earnings on various [other] funds."
While the county has been able to "maneuver moneys around consistent with the bond indenture for purposes of making debt service" in September, it has "exhausted all of the surplus money," Davis said.
For March 1994 debt service, "we will have to tap into the reserve fund if the delinquency is not cured," he said.
Parcel owners in Assessment District No. 159 pay twice-yearly assessment installments to the county in April and December. The county turns proceeds over to bondholders in March and September.
Assessment District No. 159 has issued $67.9 million of 1915 Assessment Act bonds since its creation in 1988. Unrated bonds have been issued three separate times - in 1988, 1989, and 1992 - for sewer, water, storm drain, street, and roadway improvements.
But during the past two to three years, the 4,952-acre assessment district has had problems with a residential development known as Redhawk that occupies 1,275 acres of the district, Davis said. In that period, assessment levies now totaling about $1.4 million to $1.5 million, including interest and penalties have not been paid by Redhawk property owners.
A court hearing is scheduled this month in Riverside County Superior Court on judicial foreclosure actions that have been pending against Redhawk owners since 1991.
The county's seven-member debt advisory committee would like to recommend to supervisors that they issue an additional $25 million to $30 million in assessment bonds in the district "in the near future," according to Lawrence G. Rolapp of Fieldman, Rolapp & Associates, the county's financial adviser.
Rolapp said the district has statutory authority to issue up to $157 million in bonds. However, under state law, additional bonds may not be issued until foreclosure proceedings over Redhawk's delinquent special assessments are resolved.
The Redhawk problem is complicated by involvement of the Resolution Trust Corp., the federal bailout agency. In August 1991, Resolution Trust placed San Diego-based Great American Bank in receivership. Great American has the deed of trust that secured the Redhawk property.
Resolution Trust now controls the deed of trust, but technically it does not own the property. Therefore, the delinquent assessments are still the liability of Redhawk property owners.
Resolution Trust spokeswoman Anne Freeman said Great American is under the agency's conservatorship. The Redhawk property is classified as a nonperforming loan. Redhawk "is not our property, we just own the note," she said. "It is outside our purview as far as the [assessment levies] are concerned."
Freeman said Resolution Trust would rather find a buyer for the Redhawk property than foreclose. "Generally, the RTC does not foreclose, which prompts litigation and lots of lawyer man-hours," Freeman said. "If we ended up owning [the Redhawk property], we would have to review [the policy on the assessments]. But that would be putting the cart before the horse. "
Davis said he is concerned with Resolution Trust's position that while it has a security interest in Redhawk, the agency is not an owner and is not responsible for the delinquencies.
"I am aware that in other districts and in other financings, [Resolution Trust officials] cured the problem and pledged to keep [payments] current." Davis said. He described Resolution Trust's actions in Assessment District No. 159 as "inconsistent conduct."
Steve Juarez, executive director of the California Debt Advisory Commission, said if Resolution Trust's Redhawk-related actions put Riverside County "in a precarious position as to [payments] on existing bonds or future bonds," the advisory commission would pursue "further action" with the RTC.
Rolapp expressed frustration with Resolution Trust's position on nonpayment of Redhawk assessment installments.
"The underlying security of the district is fine," Rolapp said. "If you ignore Redhawk" the assessment district's delinquency rate is 6%, below the county average, he said.
Rolapp said the county wants to resolve the matter quickly in order to issue additional bonds under the 1915 act to fund construction of improvements "to alleviate flood control and traffic concerns."
Rolapp said the Rancho California Water District, faced with strong demand on the current water system, advanced district funds to complete water system projects. "These advance dollars are expected to be reimbursed out of a subsequent series of Assessment District No. 159 bonds." Rolapp said.
Adding another layer of complexity to the situation is a Mello-Roos district that overlaps Redhawk. Community Facilities District No. 89-1 of the Temecula Valley Unified School District, a $12.8 million issue, has a high delinquency rate on its special taxes.
Resolution Trust also has a conservatorship role in this district. A school district employee said the district would make its September principal and interest payments to bondholders, however.