The St. Paul Port Authority has hired a financial advisory firm to devise a plan on when and to what extent it will have to tap its pledged reserve funds to make debt service payments on its outstanding Resolution 876 revenue bonds.

The authority's president, Kenneth Johnson, made the announcement last week.

"The purpose of the study is to aid the port authority in anticipating, and planning for, the use of its reserve funds to pay principal and interest on Resolution 876 bonds as they come due," Mr. Johnson said in a press release.

In March, Standard & Poor's Corp. downgraded to BBB from BBB-plus $332 million of outstanding Resolution 876 bonds, citing weakened resources of the Common Revenue Bond Fund, the source for debt service payments on the bonds.

The fund is composed of loan repayments from commercial real estate developers who financed projects such as office buildings and retail outlets with Resolution 876 bond proceeds.

But in the last three years 28 loans have gone into default. Together they represent 32.5% of the Resolution 876 bonds' outstanding principal.

The port authority has had to make up deficits in the Common Revenue Bond Fund from Accumulated Net Reserves, a fund that was built up in prior years from loan repayments after debt service and mandated contributions to other reserve funds had been made.

Mr. Johnson said current projections are that the Accumulated Net Reserves will be depleted in December, and that the authority will have to tap its other reserve funds to meet debt service payments.

"The receipt of revenues from facilities financed by the Port Authority under the Common Revenue Bond Fund program is subject to many contingencies, and it has become increasingly evident that actual revenues received by the port authority will neither be equal to amounts which were originally anticipated by the port authority, nor sufficient to pay debt service on the 876 bonds, without resorting to reserve funds to make up deficiencies," Mr. Johnson said.

He added that the study, to be done by Minneapolis-based Springsted Inc., should be completed by the end of the year.

The authority has $55.9 million of reserves representing 16.8% of outstanding principal, according to Standard & Poor's.

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