Wenatchee Readies Deal to Redeem Defaulted Notes

A special district in Wenatchee, Wash., is set to sell $49 million of limited sales-tax bonds to clear up a $42 million default on bond anticipation notes tied to a troubled sports arena.

The Greater Wenatchee Regional Events Center Public Facilities District planned to price the bonds on Friday, according to Thomson Reuters’ TM3 calendar.

The Bans were set to be sold in a first series of $46 million of term bonds due in 30 years and 40 years.

A second tranche of $3 million matures in 2016.

In June, the facilities district’s board hired its former underwriter on the defaulted deal, Piper Jaffray & Co., as underwriter for the new deal to take out the notes, along with Foster Pepper PLLC, which employs an attorney who worked on the previous deal, as legal counsel. K&L Gates was note counsel on the 2008 offering.

In August, the city and the district approved agreements releasing all claims against Piper Jaffray, the underwriter on the defaulted notes, and its bond counsel “if, and only if, bonds to retire the notes are issued.”

The agreements include K&L Gates adding $150,000 towards the refinancing, Piper Jaffray reducing its fee for underwriting the new deal to $100,000 from $470,000 and Foster Pepper forgiving money owed by the district, and working at a reduced rate on the new financing, according to the Wenatchee World newspaper.

The district was formed in 2006 to build and operate the 4,300-seat Town Toyota Center arena in Wenatchee. It defaulted on $41.7 million of bond anticipation notes on Dec. 1 because it lacked the means to pay them off and was unable to organize a long-term financing.

The Securities and Exchange Commission is reportedly investigating everyone involved in the issuance that led to the default.

The regulator has asked the city to voluntarily produce several different types of information, including anything tied to the event center’s finances and bond anticipation note issuance.

In 2008, the district issued three series of notes: $5 million of limited sales-tax Bans, $31 million of revenue and special tax Bans and $5.5 million of taxable revenue and special-tax Bans.

The default followed failed rescue attempts by the city — which has a contingency agreement with the district to back the debt — and Washington State.

This year, Gov. Christine Gregoire signed a bill giving the city authority to raise its sales tax without voter approval. In April, voters in the counties that make up the district approved a separate 0.1% sales tax increase that will secure long-term bonds to refinance the defaulted Bans.

Moody’s Investors Service downgraded Wenatchee’s unlimited tax general obligation bond rating to Ba2 from A3 in May.

Standard & Poor’s dropped the city’s long-term and underlying rating to BBB from A-minus. It also cut the short-term rating on the district’s notes to D from SP-3.

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