DALLAS -- A proposal to create a wildlife refuge near Austin, Tex., could jeopardize debt service payments of a troubled road district that would lose half its taxable property to the preserve.

The Travis County Commissioners Court yesterday gave conditional approval to the plan from the Austin City Council to purchase a 30,000-acre habitat that would include nearly half the land now in the Southwest Travis County Road District No. 1.

To avoid losses for bondholders, the commissioners stipulated that road district land cannot be included in the habitat if it will affect taxable values, unless bondholders and the county-created district agree to a defeasance, County Judge Bill Aleshire said.

The land would no longer be taxable if, as proposed, it were purchased by a government entity. The Austin plan would therefore strip the road district of at least 40% of its taxable values needed to pay off zero coupon bonds maturing through 2019.

"This is a plan that would bankrupt bondholders," said Austin Councilwoman Louise Epstein, a critic of the plan who has ties to public finance professionals. "The objective is to force bondholders to accept far less than they had expected to get."

Even though the county, the city, and environmentalists back the so-called Balcones Canyonlands Conservation Plan, local officials said they want to ensure that bondholders are not ignored.

"We're not going to be involved in anything that's going to undermine the financial integrity of the district," said Mr. Aleshire, whose county commission is also the road district board. "That has been our position."

Landowners have begun talks with three unidentified institutional bondholders who officials say own 98% of the outstanding debt. The goal, they say, is to negotiate a possible cash defeasance of the bonds.

"There are many people who are working to reach some kind of solution that would be acceptable to all parties involved," said Ladd Pattillo, president of D. Ladd Pattillo & Associates of Austin, the road district's financial adviser. "It's a serious situation and I think it has a lot of serious implications, both legal and financial."

So far, no one has said what kind of offer the bondholders might accept.

"The best results will come from a united landowners effort," said James Sulentich, director of special programs for the Nature Conservancy of Texas, the nonprofit group that plans to purchase road district property for the plan. "We haven't suggested what a reasonable defeasance would be."

Earlier this year, the group negotiated a contract with the Resolution Trust Corp. to purchase nearly 10,155 acres, including about half the road district property, for $15.5 million.

The RTC, the federally created bailout agency charged with disposing of assets from failed thrifts, said the sale would be its largest ever near the capital city where it owns large blocks of land because of failed developments in the mid-1980s.

"The RTC has said it will not sell the land if it negatively impacts the bonds," said John Crew, managing director for Dillon, Read & Co. The firm underwrote the district's original 1985 issue and a debt restructuring deal two years ago.

"The bonds are an issue that we want to resolve," said Teresa McUsic, a spokeswoman for the RTC in Dallas. "But we may have to make a business decision. We're out to sell this property, and if we can do that, then that's our job."

The future of the county-created road district was murky even before the habitat plan was proposed. Development in the 7,015-acres site never took off as expected, and the land remains bare. The same is true in most of the five other road districts created in Travis County and neighboring Williamson County in the mid-1980s.

To avert financial calamity on $20.2 million of tax-backed GO bonds sold in 1985, the district restructured its debt in 1990 by selling $19.89 million of refunding bonds underwritten by Dillon Read. At maturity, the bonds would be valued at $230 million.

Under the transaction, the district sold $2.89 million of capital appreciation bonds due in 2009 and $13 million of the same type of bonds due in 2019. Also, $4 million of current interest bonds due Sept. 1,2000, were sold. The district has never missed a payment on its debt.

The refunding bonds were structured to initially give the district a flat property tax rate in an attempt to restart development. But soon after the transaction, parts of the road district were discovered to be home to rare species.

In fact, the presence of several rare insects and seven endangered species, including the golden-cheeked warbler and the black-capped vireo, make it unlikely that development would ever be accomplished because of federal restrictions.

Because the area is rich in rare species, the property is now viewed as a prime site for the proposed regional wildlife refuge that would be financed with city and county bonds.

"In a situation like this, the land is good for one thing - - to be left alone," said an investment banker familiar with the plan. "For the bondholders, this plan may be the best hope of getting anything out of a bad situation."

For some in the bond community, the plan raises a complex legal question over the ability of one taxing authority to take an action that harms the debt and operations of another.

"I think there's a real fundamental constitutional question of whether one unit of government can take an action that sends another one into bankruptcy," said one legal expert. "I think that is a question that may have to be answered here."

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