A bondholder lawsuit charges that the Battery Park City Authority violated securities laws last year when it called more than $95 million of housing revenue bonds to refinance a mortgage loan at lower interest costs.
In October 1993, the New York State authority called the bonds and then sold $84 million of debt, using Goldman, Sachs & Co. as senior manager. The issue refunded a substantial 1980 authority sale that financed the construction of Gateway Plaza, a residential and commercial development on the Battery Park City site in lower Manhattan.
Lawsuits filed by disgruntled bondholders are becoming more common as issuers attempt to reduce their debt service payments by refunding bonds issued when interest rates were higher, bond lawyers said. Bank of New York, a trustee for seven unit investment trusts that held $7 million of the 1980 issue, filed the action in U.S. District Court for the Southern District of New York last week.
The class action suit says all bondholders lost $18 million in interest income following the refunding, a deal that it says was unauthorized under the original issue's official statement and a bond resolution adopted by the authority in 1980.
As a result, the authority, a publicbenefit corporation of New York State, violated sections of the Securities and Exchange Act of 1934, the suit charges.
The authority would not comment on the lawsuit. "We have received the summons and have forwarded it to our attorneys for review," the authority said in a prepared statement.
Stephen Lowey, attorney for the plaintiffs, would not comment.
Specifically, the lawsuit states that the authority's resolution would not allow a refunding before June 1, 2005. The authority's notice of redemption also "falsely stated" that the agency could redeem the 1980 bonds, even though "the 1980 bonds were not so subject to redemption."
The plaintiffs are seeking $18 million in compensatory damages plus $54 million in punitive damages "in light of the willfulness of defendants' wrongful and unlawful conduct," the suit says.
In addition to Battery Park City, the suit names two other defendants: Hudson Towers Housing Co. and Marina Towers Associates, subsidiaries of the Lefrak Organization Inc.
As part of the original mortgage agreement, the authority loaned the two companies more than $87 million of the bond proceeds to finance Gateway Plaza.
Before the refunding, the companies paid 8.40% in interest each year until June 1, 1983, and 9.50% until June 1, 2023, the suit says.
Following the 1993 issue, the authority made a second mortgage loan to Hudson Towers and Marina Towers, at an interest rate of 7.08%. The lawsuit says the two companies saved more than $62 million.
The trusts plus all other former 1980 bondholders whose 1980 bonds were involuntarily sold to the authority on Dec. 1, 1993, compose the class.
Lefrak officials did not return a telephone call.