CHICAGO - The St. Paul Port Authority yesterday afternoon announced a restructuring plan to avoid an anticipated default of $322 million of outstanding Resolution 876 Common Revenue Bonds.
Michael Strand, vice president of communications for the authority, said the plan was approved by the authority's board of commissioners yesterday.
The restructuring would affect holders of $258 million of bonds that mature after Dec. 31, 1999, Strand said. He added that about $63.9 million of bonds that mature before 2000 will not be affected.
The average interest rate on the affected bonds under the plan would be reduced to 4.87% from the current 8.85%, which represents a 45% reduction of interest on the bonds, Strand said.
Bondholders affected by the restructuring also could choose one of two other options: a 25% reduction in principal on the bonds; or a combined principal reduction of 15.5% and interest rate reduction of 20%.
The authority, which has issued bonds under the resolution since the 1960s, has used proceeds to help finance 168 different commercial and industrial real estate projects in St. Paul. But a sluggish real estate market led to a number of defaults in recent years on lease payments.
Strand said that a "residual certificate" would be attached to the restructured bonds, allowing bondholders to recover any excess revenues that result from the improvements in the economy and real estate market.
The authority board also appointed First Trust National Association in St. Paul as a fiduciary, or indenture trustee, to act on behalf of all holders of the Resolution 876 bonds.
After the board meeting yesterday, First Trust filed a petition in Ramsey County, Minn., District Court in St. Paul for an order to implement the plan in accordance with a state law that facilitates the restructuring of private and corporate trusts, Strand said.
All bondholders will receive a notice describing the restructuring and advising them of the date of the plan's hearing, according to Wendy Raway, a spokeswoman for First Trust. 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.
This procedure was chosen instead of a voluntary restructuring effort because of the authority's failed attempts to clearly identify and contact all holders of the Resolution 876 bonds, Strand said. He added that the diverse composition of investors also made it impossible to achieve unanimity on a specific restructuring plan.
Strand emphasized that the plan is not a bankruptcy proceeding. He also noted that it will not affect other authority projects or funds.
Strand explained that the plan was reviewed and approved by the Chicago office of Kenneth Leventhal & Co., an accounting firm specializing in real estate and financial services consulting.
In August, the authority commissioned Leventhal to review its restructuring proposals after the authority dropped a plan for immediate bondholder concessions. Those consisted of a $45 million reduction in principal and a 1.25% decrease in interest rates on the Resolution 876 bonds.
Based on discussions with rating agency officials, the authority determined that the concessions would be "too large" in proportion to the intrinsic value of the rating on the bonds. The bonds are rated BB with a negative outlook by Standard & Poor's Corp.
The $45 million reduction was announced in May after Springsted Inc., a St. Paul financial advisory firm, had concluded in January that the authority would exhaust its debt reserves and face a default on its outstanding revenue bonds by 2000.
Strand said the current plan will help the authority attain an investment grade rating on the bonds, adding that the plan provides the authority "added security, stability, and liquidity."
Last September, Standard & Poor's downgraded the revenue bonds to BB with a negative outlook from BBB. At that time, the agency pointed out that an increasing number of loan defaults, totaling 36 with a principal amount of $115.7 million as of Aug. 31, 1991, continued to "diminish portfolio quality."
Pending its review of the restructuring plan, Standard & Poor's could not comment on the impact the plan may have on the authority's credit rating, according to Damien Bosco, an associate director at the rating agency.