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'Wine Shrine' in Chap. 11

SAN FRANCISCO - Copia: The American Center for Wine, Food and the Arts, a Napa, Calif., nonprofit with about $77 million of outstanding tax-exempt bonds, sought Chapter 11 bankruptcy protection Monday evening.

Copia, founded by Robert Mondavi and other vintners in the late 1990s, sold $70 million of bonds in 1999 to finance an 80,000-square-foot museum and cultural center on the banks of the Napa River. The nonprofit hoped to attract a half million visitors a year to wine tastings, cooking classes, art exhibits, films, concerts, and two high-end restaurants.

But in a region crowded with America's most renowned wineries and some of its top haute cuisine restaurants, the so-called wine shrine never drew even half the audience it expected. It has lost money since opening in 2001, posting a $12.7 million loss in 2006.

"The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure, and ultimately position our public-benefit corporation to compete more effectively," chief executive officer Garry K. McGuire Jr. said in a statement.

Copia refinanced its debts last year in a $77 million ACA Financial Guaranty Corp.-insured deal that sold via the California Infrastructure and Economic Development Bank. The bonds are backed by both Copia's revenues and a mortgage on the museum.

Despite disclosing "sustained recurring losses" and "substantial doubt regarding Copia's ability to continue as a going concern" in bold type on its official statement, JPMorgan was able to sell the deal because it carried insurance from ACA, said Stan Hazelroth, executive director of the Infrastructure and Economic Development Bank.

The bonds were priced to yield from 4% in 2010 to 5.48% on the 2037 term bond. In recent months, the 2010 bonds have traded with yields as high as 48%, according to Municipal Securities Rulemaking Board trade data.

ACA had an A rating from Standard & Poor's at the time, but soon after the issue, the insurer was overrun by losses on structured products it insured, including subprime mortgage-backed securities. In December 2007, Standard & Poor's downgraded the insurer to CCC.

ACA agreed to settle its structured product obligations and to enter runoff in August. Under the terms of an agreement approved by the Maryland Insurance Administration, ACA was expected to continue to be able to pay its insurance claims on its $7.3 billion book of muni business.

ACA spokeswoman Morgan Lynch did not return calls seeking comment before deadline yesterday. Hazelroth said he believes the insurer will be able to pay any claims that arise from the Copia bankruptcy.

He said the Bank of New York, the trustee on the deal, has made the last two interest payments on the debt out of the debt service reserve funds.

Copia filed for bankruptcy in the U.S. Bankruptcy Court for the Northern California District in Santa Rosa, Calif., after unexpectedly closing its doors last week. It said in a press release Monday that it "plans to reopen and operate during the reorganization while management focuses on executing a comprehensive corporate restructuring plan."

It also said it has received a commitment for $2 million of debtor-in-possession financing and hopes "to sell all real estate assets and lease-back facilities where it can deliver classes and programs to serve its audience of more than one million food and wine enthusiasts."

The organization has already gone through multiple staff cuts and service cutbacks in recent years, and its attempts to increase revenues have prompted an Internal Revenue Service investigation of its tax-exempt status, according to the Sacramento Bee.

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