CHICAGO -- The end to more than 20 years of litigation involving the city of Chicago-Calumet Skyway bond default will have to wait at least a few more days.
Lawyers representing the city of Chicago and bondholders were scheduled to meet yesterday with U.S. District Court Judge James Moran to officially dismiss the case, which involved $101 million of bonds sold in the 1950s to finance the skyway's construction.
Instead, the parties agreed to postpone the move.
"We feel that because of the age of the issue it would be wise to give holders of bearer bonds a little more time to redeem their bonds and any remaining interest coupons," said Ken Purcell, an attorney at Winston & Strawn, which is representing bondholders.
In May, bondholders agreed to dismiss their lawsuit after the city announced it would do a current refunding of the debt and use the proceeds to redeem the outstanding bonds at a price of 101% starting July 1.
Chicago refunded $90.2 million of the remaining bonds on May 24 and had redeemed $76 million of the bonds by midday last Friday, according to Leslie D. Locke, an attorney representing American National Bank, the depository for the bonds. However, $14.6 million of bearer bonds remained unredeemed, Locke said.
The attorney for bondholders said a delay in dismissing the litigation will give the owners of the bonds more time to redeem their holdings.
The bonds have been outstanding from 37 to 39 years. Chicago sold $88 million of the revenue bonds in 1955 and another $13 million of bonds in 1957 -- long before bonds were registered. Officials involved in the redemption speculated that some of the bonds may be kept in safety deposit boxes, drawers, or safes of bondholders.
"If they are bearer bonds, there isn't a record of who owns them," Locke said. "The bonds have to be submitted."
One municipal bond market participant said that bonds with 40-year maturities, like the skyway bonds, are uncommon. He said that bonds issued in the 1950s and 1960s typically had low coupon rates, and so were not redeemed until their maturity dates. The interest rates on the skyway bonds were 3 3/8% and 4 3/8%.
The market participant said that there is no way to reach holders of the bearer bonds. "They'll show up eventually," he said.
An official at one of the depository trust companies said that she has never handled any bonds with 40-year maturities.
Gail Niemann, Chicago's deputy corporation counsel, said the city has given "all the notices it's required to give" to bondholders for the redemption. However, she could not explain how the notices were given. An executive at American National Bank declined to comment on the process and referred questions to the city's legal department.
Niemann blamed the postponement in court on a minor dispute over a redemption by one bondholder. She said the city believes the redemption has gone "amazingly well."
"I'm frankly amazed that much has been paid out already," she said.
Purcell said that the lawsuit will probably be dismissed on July 21 even if many of the remaining bonds are still unredeemed as of that date.
"We can't keep it pending indefinitely," he said. "At that point, the city would have done what it's obligated to do."
Even after the litigation is gone, "the money is not going to disappear," Locke said.
He said American National Bank is required to hold the money for seven years from the date of redemption. After seven years, the bank, under Illinois law, would turn the money over to the state. Locke said that bondholders would then be able to get their money from the state.
Bondholders have been in federal court since the 1970s to seek remedies for the bond default that occurred in 1963 due to a lack of sufficient traffic on the 7.8-mile tollroad that connects the southeast side of Chicago with the northwest corner of Indiana. Chicago caught up with past-due interest on the bonds in 1989 and redeemed $10.8 million of bonds through a court-ordered tender offer in 1991. Bondholders have also successfully sought courtordered toll increases on the skyway.
Chicago's redemption of the bonds in May through a 30-year refunding came months before the Jan. 1, 1995, maturity date for the outstanding bonds. If Chicago had not redeemed the bonds by that date, the city would have faced interest rate penalties and continued bondholder litigation.