CHICAGO — The St. Paul Port Authority and lawyers for a group of 876 Fund bondholders will appear at a court hearing Monday on their dispute over the fate of $51 million of outstanding bonds backed by the struggling economic development fund.
The group of objecting bondholders filed a complaint in June asking the court to appoint a receiver, order a full accounting of the authority’s use of revenue generated by 876 bond fund assets, and issue a restraining order against use of any 876 revenues.
The authority filed a counterclaim last month asking the court to free up $22 million being held in an escrow to allow the authority to get caught up on interest payments and then proceed with a tender offer that would provide the remaining 2,600 bondholders with a discounted payout.
“The Port Authority wants to make sure that every 876 bondholder receives some payment and return on his investment and avoid a situation where some 876 bondholders receive full or a disproportionately large payment and some 876 bondholders receive little or no return of principal,” the complaint reads. “The Port Authority’s current counterclaim and third party complaint is an effort to honor that bedrock principle.”
Ramsey County District Court Judge Robert Awsumb will consider various motions filed in the case at a hearing Monday morning.
The fund’s reserves were drained in 2004 and principal and interest payments have fallen short since then. The authority in 2006 devised a liquidation plan in which it planned to sell off the revenue streams pledged to the 876 Fund to provide partial benefits for all bondholders.
The agency won court approval in 2007 to proceed. The bonds mature in 2022 and the authority believes investors with $35 million of later-maturing bonds will never receive any principal repayment if no action is taken.
A group of objecting bondholders who hold about $18 million of the debt challenged the liquidation and the district court’s refusal to appoint a receiver to manage any liquidation. The appellate court upheld the district court’s decision, but the Minnesota Supreme Court last September voided lower court rulings.
The high court found the district court lacked jurisdictional authority to approve the liquidation plan in part because it altered the original bond contract. The original 876 resolution allows the Port Authority to change the original terms of the fund without bondholder consent only if the changes do not hurt any bondholders.
The court sent the case back to Ramsey Court Judge Teresa Warner to consider whether the objecting bondholders had filed in a timely fashion objections to the authority’s 2002 and 2004 tender offers. In her ruling in June, Warner sided with the objecting bondholders and vacated the 2002 and 2004 orders, a decision that effectively killed the liquidation plan, said authority spokesman Tom Collins.
The objecting bondholders — who filed a new lawsuit in June — believe the port has breached its contract in its management of the fund. Keith Broady of Lommen, Abdo, Cole, King & Stageberg represents the objecting bondholders.
In its counterclaim last month, the authority said it hopes to involve all bondholders in the discussion over the fate of the fund, according to an informational letter posted on the authority’s website for bondholders at
The revenue streams pledged to the bonds — which come from remaining leases and rental and other fees — generate only about $2 million annually. That’s far short of the $5 million in annual interest owed on the bonds, Collins said.
The authority established the fund in 1974 to support revenue-producing projects and issued $428.8 million of commercial development revenue bonds backed by project revenues between 1974 and 1991. Many of the projects failed and pledged project revenues have failed to cover debt service since 1991. Reserves were tapped until their depletion in 2004. Principal payments have been withheld since 2006 as restructuring efforts have failed.
