CHICAGO -- The St. Paul Port Authority's restructuring plan for its Resolution 876 Common Revenue Bond Fund received unenthusiastic reviews from various public finance officials and fund managers last week.

The authority drew up the plan to avoid a default of its outstanding bonds by 2000. Released last Tuesday, the plan would affect holders of $258 million of bonds that mature after Dec. 31, 1999. About $63.9 million of bonds that mature before 2000 will not be affected.

One investment banker said the plan, which the authority worked on for a year, is the best that can be expected "under the circumstances."

"It's an acceptance of what many bondholders had feared," he said. "I compare it to the three stages of death: anger, denial, and acceptance. Some bondholders will have to accept the reality."

One public finance executive described the proposal as a "cramdown" plan that is not "a positive thing" for the affected bondholders.

However, he said the appointment of First Trust National Association of St. Paul as an independent trustee was a positive move. As part of the restructuring, the authority appointed First Trust on Tuesday to act on behalf of bondholders.

A fund manager agreed the appointment of First Trust was a "step in the right direction." But he expressed concerns about whether the plan will be enough to spur an upgrade of the Resolution 876 bond rating.

Last September, Standard & Poor's Corp. downgraded the revenue bonds to BB with a negative outlook from BBB. At that time, the rating agency pointed out that an increasing number of loan defaults continued to "diminish portfolio quality."

Another fund manager said that though bondholders affected by the restructuring "have their backs against the wall," they still have a glimmer of hope.

"At least if bondholders give a little now, they can hope to get some of their principal back later," he said, referring to the residual certificate attached to the restructured bonds. That certificate would allow bondholders to recover any excess revenues resulting from improvements in the economy and real estate market.

Market sources said the bonds trade in the secondary market, mostly from regional firm to regional firm, although some funds do own bonds.

Traders said activity generally centers around odd lots. Late Friday, market sources said bonds changed hands around 13%.

Holders of bonds affected by the restructuring could choose one of three options listed in the plan: a 45% reduction of interest on the bonds, a 25% reduction in principal on the bonds, or a combined principal reduction of 15.5% and interest rate reduction of 20%.

The average interest rate on the affected bonds under the first option would be reduced to 4.87% from the current 8.85%, which represents a 45% reduction of interest on the bonds.

Michael Strand, vice president of communications for the authority, said the plan is a "straightforward, honest" way to avoid the anticipated default of $322 million by 2000. He also said the plan provides bondholders with "added security, stability, and liquidity."

The authority has issued bonds under the resolution since the 1960s. It has used proceeds to help finance 168 different commercial and industrial real estate projects in St. Paul. But a sluggish real estate market has led to a number of defaults in recent years on lease payments.

Last week, the Port Authority said all bondholders will be notified of the restructuring and the date of the plan's hearing. At that time, bondholders will have the opportunity to comment on the plan. After the hearing, a judge will decide whether to authorize the restructuring.

First Trust will field inquiries about the plan through a hotline number, 612-244-0123, to be activated Thursday.

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