BRADENTON, Fla. — The Clay Gas Utility District of Clay County, Tenn., filed a notice last week saying that it has not made scheduled principal and interest payments on its bonds since 2000.
The notice added that “it is not expected, at this time, that the district will be able to make future principal and interest payments.”
The troubled district has not made a single debt-service payment since selling $3.25 million of gas system revenue bonds in 1998.
The unrated, uninsured bonds were sold with serial maturities between 1999 and 2007, and term bonds in 2012 and 2017. Proceeds were used to buy equipment and install a natural gas distribution system, fund capitalized interest and a debt-service reserve, and pay costs of issuance.
According to state documents, the district was beset by several problems in the years after the bonds were sold, including the conviction of its project manager, who allegedly embezzled approximately $200,000.
In 2004, the district tried to restructure the debt after negotiating to pay bondholders about 26 cents on the dollar. However, local voters refused to approve the sale of new bonds in a referendum.
In August, the Tennessee Utility Management Review Board ordered the district to explore methods of restructuring its debt to resolve ongoing financial difficulties. The district is working with Morgan Keegan & Co., said Blake Fontenay, spokesman for the Tennessee Departments of Comptroller, State and Treasury.
“It’s a difficult situation for everyone,” said Ray Norris, president of the Clay Gas Utility District board of commissioners. “We’re now in very early stages of development and discussion. We have a ways to go.”
Norris declined to say if the board has discussed the possibility of filing for Chapter 9 bankruptcy.
“We’re trying to properly size the debt with the size of the business,” he said, noting that the district owes approximately $4.7 million just from missed principal and interest payments to date.
Part of the problem is that Clay County, which encompasses about 260 square miles and is located about mid-way along the northernmost state line, is a distressed county, he said. Several years ago, the county lost its biggest employer — Oshkosh B’Gosh Inc.
The gas district, which is aligned with the county, was projected to have 600 customers upon startup.
But Norris said the well-publicized legal problems of the project manager who went to prison was “a killer” for the district to lure new customers.
Today, the gas district has approximately 198 customers.
Norris would not estimate the timeframe for devising a restructuring plan and deferred questions about that to Morgan Keegan. The firm, which was the underwriter when the bonds were sold, could not be reached for comment.
The first notice that the district was not likely to pay its debt showed up on the Municipal Securities Rulemaking Board’s EMMA system in April, where last week’s notice was filed along with a list of outstanding bonds maturating from 2001 through 2017.
The April notice said the district has not made payments and was unlikely to anytime soon.
According to DPC Data’s MuniFilings website, the district began notifying bondholders of unscheduled draws on debt-service reserves in June 2000. In the following two years, the district told bondholders about payment delinquencies.
After 2002, no payment disclosures were filed on DPC until this April when a district filing said “due to lack of funds,” the district had been unable to make the scheduled principal and interest payments since 2000 and is not expected to make future principal and interest payments.
There were no disclosures on DPC regarding the embezzlement or any plans to restructure the debt.