CHICAGO - The Racing Association of Central Iowa has unveiled a reorganization plan to pay off $39 million of outstanding sports facility revenue bonds issued by Polk County, Iowa, to build the bankrupt Prairie Meadows racetrack.

The plan was filed in U.S. Bankruptcy Court in Des Moines on Monday, according to Thomas Flynn, attorney for the racing association, which owns the racetrack.

Implementation of the plan is dependent on the reversal of a Polk County District Court decision from March on a lawsuit that is currently before the Iowa Supreme Court. That suit, filed by B.F. Riley, a Des Moines attorney, challenges the county's notice of a public hearing on a lease-purchase agreement between the county and the racing association. A court injunction bars the county from making any debt service payments until the suit is resolved.

Under the lease-purchase agreement, the county must provide the difference between the association's annual debt service on the bonds and track revenues derived from a wager tax. The county issued the sports facility bonds in 1984 to build the racetrack in Altoona and remarketed them under the lease-purchase agreement in 1987.

If the lower court's decision is reversed, the racing association will request that Polk County's obligations under the lease-purchase agreement be accelerated to allow the county to issue general obligation bonds before the Dec. 1, 1997, optional call date to pay off bondholders, Flynn said.

However, if the lower court's decision is affirmed, he continued, the racing association will deed the racetrack and its assets over to the bondholders' trustee, the First Trust National Association.

Flynn said a Bankruptcy Court hearing to approve the contents of the reorganization plan will probably occur before mid-February. By mid-March, he added, the court could then hold a confirmation hearing after bondholders have voted on the plan.

If bondholders favor the plan and the decision on the lawsuit is reversed, the GO bonds could be issued shortly after the confirmation hearing.

John Thomas, attorney for First Trust, said he is looking at the plan in more detail. He did note, however, that he is interested in "anything that pays bondholders in full."

Polk County Manager James Koolhof said the county will have no comment on the plan until the court hearing is held.

Ann Lowenthal, vice president and manager of the Plains regional group at Moody's Investors Service, commented that the plan sets up a potential course of action to refinance the debt. However, she added that it is premature to draw any conclusions about the plan until the Riley suit is resolved.

Meanwhile, bondholders are still waiting for their $2.3 million debt service payment that was due Dec. 1. Bankruptcy Court Judge Russell Hill earlier this month presided over a hearing to determine the amount of funds the racetrack association has available for debt service. Hill is currently reviewing the case. Another hearing date has not been set.

However, the county has set up a $3.9 million escrow account to reassure bondholders that it will be able to pay the debt service after the lawsuit that bars the payment is resolved. The funds in the escrow account would cover the $2.3 million December debt service payment and a $1.6 million interest payment due June 1.

The county's sports facility bonds are rated Caa by Moody's. The county's general obligation debt is rated A by Moody's and AA by Standard & Poor's Corp.

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