CHICAGO - The St. Paul, Minn., Port Authority has dropped its plan for immediate bondholder concessions and hired an accounting firm to review new proposals to avoid a future default of its $321 million of outstanding debt, according to a letter sent to bondholders Friday.

Meanwhile, the U.S. House of Representatives passed legislation Monday that would aid the authority in its debt restructuring when a proposal is adopted.

Kenneth R. Johnson, the authority's president, said in the letter that the authority scuttled a restructuring plan announced in May based on discussions with rating agencies.

"Based on our most recent talks with the rating agencies, we have reluctantly decided that the concessions which bondholders would be required to make in order to achieve an investment-grade rating would be too large in proportion to the rating's intrinsic value," Mr. Johnson wrote.

"Therefore, the port authority felt it could neither justify nor recommend that bondholders make such large concessions, although we have not given up on the possibility of achieving an investment-grade rating on the restructured program at some point in the future," he added.

The port authority, which has $321 million of outstanding Resolution 876 Common Revenue bonds, proposed in May that bondholders accept a $45 million reduction in principal and a 1.25% decrease in interest rates on the bonds by mid-July to avert projected cash-flow shortfalls.

At that time, the authority said even more bondholder concessions may be needed to return the rating of the bonds to investment grade. The bonds are rated BB with a negative outlook by Standard & Poor's Corp.

That proposal was announced after Springsted Inc., A St. Paul financial advisory firm, concluded in January that the authority would exhaust its debt reserves and face a default on its outstanding revenue bonds by fiscal 2000.

In his letter, Mr. Johnson said the port authority has commissioned Kenneth Leventhal & Co., a Chicago accounting firm that specializes in real estate and financial services consulting, to review any restructuring plan proposed by the authority. The company was hired at the request of some bondholders, the letter says.

The letter adds that the review will include verification of the assumptions and cash flows that the port authority is using in analyzing restructuring proposals.

In particular, the accounting firm will review the authority's conclusion that the "anticipated bond defaults cannot be avoided even if there is a substantial recovery in the real estate market," the letter says.

Mike Strand, a vice president of the authority, said the accounting firm will verify the conclusions in the Springsted study and then review the authority's restructuring proposals. Leventhal's review of the Springsted study is expected to be completed by early fall, he said. A timetable for Leventhal's review of the restructuring proposals has not been set, he added.

According to the letter, restructuring proposals being studied by the port authority are:

* Limiting the restructuring to later maturing 876 bonds. This plan would make restructuring mandatory for all bonds facing the greatest likelihood of default.

* Providing holders of restructured bonds the option of incurring either an interest rate reduction, a principal reduction, or a combination of both.

* Passing on to bondholders tax-exempt interest revenues that exceed the amounts necessary for debt service and maintenance of an investment-grade rating in return for an immediate interest rate reduction on the outstanding bonds.

* Appointing an independent party to monitor the authority's operations and act on behalf of all bondholders.

A public finance analyst, who asked not to be identified, said the appointment of Kenneth Leventhal & Co., was a positive move.

"It's a good start," the analyst said. "Most bondholders would not participate in a restructuring without some input from a second party."

As for the federal legislation, Mr. Strand said it would enable the authority to avoid tax problems related to a future restructuring.

"No matter how we do a restructuring, it would cause a technical refunding to occur, which in turn would create technical tax problems," Mr. Strand said.

Rep. Bruce Vento, D-Minn., who introduced the legislation, said his measure "would eliminate technical restrictions that currently impede the St. Paul Port Authority's plan to restructure the Common Revenue Bond Program to avoid this potential default."

The bill would waive rules against refunding multiple issues at the same time. It would also waive arbitrage rebate rules that would force the authority to lower its port fees to conform with the new lower bond rate it would gain through the refunding process.

Eliminating the arbitrage restrictions would allow the authority "to use the anticipated interest rate differential from reissuance and place such savings into the St. Paul Port Authority bond reserve fund to safeguard future payments to bondholders," Rep. Vento said in a statement.

The bill now goes to the Senate, where its prospects are uncertain. It is one of a spate of measures the House Ways and Means Committee approved last month during a meeting held solely to consider committee members' favorite tax amendments. Because the various tax measures are not attached to any large "must-do" tax package, tax aides and lobbyists have said the bills may have little chance of enactment.

Officials from Standard & Poor's did not return phone calls.

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."

The port 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.

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