CHICAGO - The St. Paul Port Authority's financial problems have spurred one institutional investor to exercise an option to tender $16.6 million of taxable bonds.

But the authority does not have the money to buy back the bonds.

The bondholder, State Mutual Life Assurance Co. of America, informed the authority in November 1991 it would tender by May 31 the privately placed 30-year bonds the authority sold in 1987 to finance the expansion and renovation of the Raddison Hotel in St. Paul, Minn.

Mike Buckley, a spokesman for the Worcester, Mass-based insurance company, said the decision to tender the bonds was made "given the port authority's current financial position" and the company's ability under the bond sale agreement to exercise a tender option after five years.

"The action is in the best interest of our policyholders," Mr. Buckley added. He was not familiar with the details of the tender and could not comment on the lack of funds.

Mike Strand, a spokesman for the authority, said neither the port authority nor the partnership that owns the hotel had the money to pay off the tendered Resolution taxable 2775 bonds by May 31.

Mr. Strand added that a "mutual and amicable" agreement with State Mutual on the tender offer was expected within the next two months.

Negotiations that started four months ago were continuing with State Mutual to either remarket or restructure the debt. The restructuring would allow the hotel's owners to continue to make payments and avoid default, which could be caused by the tender action.

The authority's financial problems stem from tax-exempt revenue bonds it sold for commercial and industrial projects under another resolution.

A recent study by Springsted Inc., a St. Paul financial advisory firm hired to conduct the study, concluded that the authority would exhaust its debt service reserves and face a default on the tax-exempt revenue bonds by fiscal 2000. These bonds were sold under Resolution 876.

Mr. Strand said the bonds sold for the Radisson Hotel project were not affected by those problems.

As a result of the study, the port authority sent a letter last month to holders of the $321 million of outstanding Resolution 876 bonds proposing a $45 million reduction in principal and a 1.25% reduction in interest rates to avert cash-flow shortfalls.

However, Mr. Strand conceded that remarketing the debt may not be a viable option given the port authority's well-publicized problems with its Resolution 876 bonds.

Mr. Strand pointed out that the State Mutual situation was the only tender action to take place as a result of the port authority's financial problems.

He said he did not believe that opportunities for other tender options existed with any more of the authority's outstanding debt.

As for the Resolution 876 bonds, Mr. Strand said the response to the authority's May letter on possible bondholders concessions indicated bondholders "were not pleased with the concept of losing money." However, he said bondholders generally understood the situation and the need to solve the financial problems.

He added the authority anticipated sending a final debt restructuring plan to bondholders later this month or next month with the hope of having a plan in place by the end of the summer.

The port authority has used bond proceeds to help finance real estate projects in St. Paul. But a sluggish real estate market led to a number of defaults in recent years on lease payments.

Standard & Poor's Corp. cited the loan defaults when the agency downgraded the bonds to BB with a negative outlook from BBB last September.

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