LOS ANGELES -- Nevada County, Calif., said last week that a $9.1 million Mello-Ross bond issue will dafault next March unless a property owner pays outstanding delinquencies or the next installment of special taxes.
Bank of America, the bond-trustee, withdrew $473.119 from the reserve account to meet a Sept. 1 debt service payment to bondholders, according to a Sept. 15 press release from the county.
That withdrawal left the reserve account with almost $70,000, which is insufficient to cover the March 1, 1994, payment to bondholders, the release says.
"It is not known whether or when the taxes will be paid," the county said.
Bond proceeds financed infrastructure for Community Facilities District No. 1990-91. The property, which has been approved for development in three phases, is commonly known as the Wildwood Estates Subdivision.
"The construction of the infrastructure for the first phase -- consisting of 103 single-family residential lots -- has been completed," the release says. "However, to the best of the county's knowledge, no lots have been sold."
Development of the second and third phases has not started, the release says. The property owner, known as Wildwood Estates Inc., "has expressed a desire to modify the project," but has not submitted applications to that effect.
First California Capital Markets Group, the underwriter of the non-rated debt, previously submitted a complex proposal to restructure the bond issue. According to the release, "This proposal lacked sufficient detail for the county to fully evaluate it and the underwriter has not provided additional detail."
Foreclosure actions are pending, against the property, including one that Nevada County filed last May because of special tax payment delinquencies. The bonds represent limited obligations secured by special taxes on property in the subdivision.
In response to the county's foreclosure action, the property owner "has challenged the calculation and amount of the levy of the special taxes on the property and seeks a substantial reduction" on amounts owed, the release says.
A court hearing is scheduled today on a Nevada County motion to overrule that objection. A ruling in favor of the property owner "would have an adverse effect on the amount of taxes available to pay the bondholders." the release says.
A bank that holds the first deed of trust on the property also has issued notice of a foreclosure sale on Wednesday. "The country does not know what impact, if any, this will have on the development of the property and the payment of the special taxes." the release says.
In addition to infrastructure, bond proceeds have been spent for extinguishment of previous assessment liens. and bond issuance and administrative costs.
About $5 million of unspent proceeds remains in the project account and is invested in short-term investments at a yield "that is substantially less than the interest paid to the bondholders." the release says.
Nevada County also is remitting a 1.5% semiannual arbitrage penalty payment to the Internal Revenue Service because of the development delays.
In the near future, the county said it "may elect" to avoid future accrual of these penalties by paying a one-time penalty -- estimated at about $500.000 -- from the remaining bond proceeds.
