WASHINGTON — The Buena Vista, Va., City Council plans to meet Thursday to discuss the possibility of hiring a financial adviser to help it devise a workout solution for a troubled $9.2 million bond issue that could force it to lose its city hall, police station, and other municipal buildings.
The lease revenue bonds, issued in 2005 by the city's Public Recreational Facilities Authority to finance the development of a golf course, were backed by project revenues.
The bonds also were insured by ACA Financial Guaranty Corp., a Maryland-based unrated insurer. The city, which has a population of about 6,300 and is located in western Virginia, put up its municipal buildings as collateral for the bonds.
But revenues from the golf course have been far less than expected and the city's finances are strained, forcing U.S. Bank NA, the trustee for the bonds, to use reserve funds for debt-service payments. The reserve funds will cover the debt service payments through June 30, 2011, but after that the city will be forced to draw on the insurance policy.
Faced with the prospect of losing its municipal buildings, City Council members are seeking help.
They met informally with Richmond-based financial adviser Davenport & Co. recently.
They are expected to formally meet in executive session Thursday, following a regularly scheduled meeting.
No votes can take place during such a session, but council members are likely to discuss hiring Davenport as a financial adviser, sources said.
David Rose, Davenport's senior vice president, said Tuesday that the firm has not been hired by Buena Vista and declined to comment on the city's financial options.
The bonds went into technical default when the city did not appropriate general fund revenue for debt-service payments from its fiscal 2011 budget, which ends June 30, 2011, and the trustee was forced to draw on the reserve funds. The city's revenues have been strained by the current recession.
Moody's Investors Service downgraded Buena Vista to Ba1 from A and withdrew its rating in a June 11 report. The bonds were originally issued without underlying ratings.
The failure to appropriate the debt-service funds "demonstrates uncertainty about the city's willingness to meet its obligations and, given the magnitude of the obligation relative to security available to bondholders, is likely to result in losses," Moody's said in a June 11 report.
Standard & Poor's rated the deal A based on the credit enhancement from ACA, when the bonds were issued in 2005. The agency currently has no rating for the bonds.
U.S. Bank withdrew funds from a debt-reserve account to make a July 15 payment, according to a material event notice it published July 28 on the Municipal Securities Rulemaking Board's EMMA system.
ACA requested the trustee make the withdrawal, according to the notice.
Buena Vista officials have reached out to ACA Financial to negotiate a workout plan, but "we couldn't get with them to have any conversations," according to Sam L. Mays, the city's vice mayor. ACA declined to comment through a spokesperson.
"The best outcome for the city would be to renegotiate our payments so that we can make payments on the golf course," Mays said.
Council members also plan to meet in two weeks to further discuss its finances when it will have revenue estimates for next year's budget, he said.
The City Council decided it could not make debt-service payments for fiscal 2011 without cutting services or raising taxes "to an astronomical figure that no one could afford to pay," Mays said.
The reserve fund will have enough money to make the golf course bonds' Jan. 15, 2011, debt-service payment, said Brian Kearney, an attorney with Heslep & Kearney PC, who is representing the city.
The reserve fund will cover about $660,000 in debt service in fiscal 2011, but will be tapped out by the end of the year, he said.
Kearney declined to comment on workout options with ACA.
In fiscal 2010, Buena Vista slashed $467,065 from the golf course's operating budget to offset most of the $485,462 in debt-service costs, according to the city's 2009 comprehensive annual financial report.
The golf course bonds maturing in 2027 last traded on Aug. 13 at 92 cents on the dollar, according to Thomson Reuters.
