CHICAGO -- The Minnesota Supreme Court has agreed to review a lawsuit filed by holders of $124.5 million of bonds that were redeemed by Hennepin County before a 1996 optional call date.

The county petitioned the state's highest court to hear the case after the state Court of Appeals in June upheld a lower court decision saying bondholders could take their case to court before presenting it to the county board. The state high court made its decision to hear the case earlier this month.

In October 1992, bondholders sued Hennepin County shortly after the county allowed a letter of credit on the bonds to expire, causing a mandatory redemption of the $124.5 million of bonds before an Oct. 1, t996, optional call date.

County officials have said that allowing the letter of credit to expire saved the county about $41 million in premiums and interest. The proceeds from the original $129 million of bonds, issued in 1986, financed the construction of an incinerator.

The suit alleged that Hennepin County and the Hennepin Energy Resource Company LP, which operated the incinerator, wrongfully prevented the renewal of the letter of credit.

Robert Levy, an attorney for the bondholders, said that oral arguments before the state Supreme Court could be held early next year. He added that he believes the Supreme Court will affirm the Appeals Court decision, allowing the suit to go to trial in Hennepin County District Court, where the case was first heard.

"We are still confident in our position that the state Supreme Court will come down in our favor and affirm the appellate court decision," Levy said.

Attorneys for the county did not return phone calls.

The Appeals Court ruled in the bondholders' favor on several fronts. The Appeals Court reversed part of a Hennepin County District Court decision that dismissed bondholders' claims that the county breached covenants in the bond indenture.

In addition, the Appeals Court said the bond documents were ambiguous as to whether the county had a right to force a redemption by refusing to renew the letter of credit.

Bondholders contended that the bonds were subject to mandatory redemption only under certain nonvoluntary events, such as the permanent shutdown of the incinerator, loss of tax-exempt status of the bonds, and failure by the county and incinerator operator to secure all government permits and licenses for construction.

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