CHICAGO — The trustee for $39 million of defaulted appropriation-backed bonds issued for a failed artificial sweetener plant in Moberly, Mo., won’t tap dwindling reserves to cover the March 1 debt service payment.
In a bondholder notice issued earlier this week, UMB Bank NA reported that it sent a notice to the city and the conduit issuer, the Moberly Industrial Development of Authority, on Feb. 27, informing them that because of the ongoing default, all principal and accrued interest was due immediately. The acceleration is permitted under the bond indenture.
“As a result of the event of default and limited funds available to the trustee, the debt service payment scheduled for March 1, 2012, will not be made,” the notice reads. Remaining debt service and project fund reserves tied to the three bond series total about $3.9 million. The balances “do not reflect current outstanding expenses for legal fees, consultant fees and trustee’s fees,” it reads.
The city last fall informed UMB that it wouldn’t honor its pledge to repay the debt issued to help finance the plant, which was abandoned by the Chinese company Mamtek US Inc. The city also handed over control of the project site to UMB.
Moberly lost its investment-grade rating from Standard & Poor’s in September after it declined to make good on its appropriation pledge supporting the revenue bonds. UMB dipped into reserves for the last debt service payment due on Sept. 1. The city’s decision followed the company’s default in August on a payment to Moberly needed for debt service.
The IDA bonds were rated A-minus when issued in 2010, one notch below the city’s issuer credit rating at the time. Standard & Poor’s has since lowered the bonds’ rating to CC from A-minus and placed it on negative watch. It also downgraded the city’s issuer credit rating to B from A with a stable outlook.
In addition to the city bonds, Missouri approved $17.6 million in assistance, though the state funds were never turned over. Officials believed the project would spur economic development in the struggling central Missouri community and create hundreds of jobs, but construction halted with the plant half-built.
State Attorney General Chris Koster is jointly investigating the project with local prosecutors, and the Securities and Exchange Commission has issued subpoenas in connection with the financing. Lawmakers have submitted bills that would affect future economic development bonds following hearings on the project.
UMB last November filed a lawsuit against Mamtek and its parent, Mamtek International, in federal court, alleging fraud. The firm has not yet responded.
The trustee reported in this week’s notice that it is seeking a default judgment. “The trustee continues to investigate Mamtek International in order to recover any and all amounts owed by Mamtek International under the bond documents,” the notice reads.
In December, UMB and four other Mamtek creditors filed a petition seeking an involuntary bankruptcy. Mamtek has not responded to that action either. The U.S. Bankruptcy Court appointed Bruce E. Strauss as the bankruptcy trustee.
In other developments, UMB reported that it met with city and state officials last month as part of a cooperative effort to find another user for the project site.
A Missouri House panel this week heard testimony on a series of bills that would affect future borrowing by local governments for economic development projects. The bills would require a public vote for local government-backed bonding for projects, and local governments to obtain some form of insurance that could be tapped to repay future appropriation-backed bonds in the event of a default.
One bill would require underwriters and rating agencies to investigate companies or projects as part of their service. A Missouri House committee concluded that state economic development officials and financial firms failed to conduct adequate due diligence on the project.
