Spokane Case Could Be Settled

SAN FRANCISCO - Spokane, Wash., could reach a settlement with investors who hold SpokaneDowntown Foundation parking garage bonds if the City Council votes to approve a newgeneral obligation bonding measure.

The move comes as the April 19 trial date for a long-running dispute over $31 million inbonds issued in 1998 by the nonprofit Downtown Foundation nears.

The City Council is expected to vote at its meeting either next Monday or a week lateron a measure that would authorize the issuance of a sufficient quantity of bonds tofinance a settlement with the investors who include Vanguard Group and NuveenInvestments. A resolution from the mayor's office outlining the proposed issue wasexpected to be filed in the city clerk's office yesterday.

The bonds were issued in 1998 to pay for the expansion and renovation of a garageattached to a mall, known as River Park Square.

"The amount that we're asking for authorization to issue is an amount that we believewould be sufficient to settle the case with the plaintiffs and the bonds that would beissued would be the city's own limited-tax general obligation bonds," said LaurelSiddoway, city special counsel for River Park Square.

The bonds were backed by a lease from the foundation to the city's Parking PublicDevelopment Authority, which operated the garage. The PDA used its own revenues to paythe foundation, which in turn used the funds to repay debt service. PrudentialSecurities Inc. was underwriter on the deal.

However, in August 2001, default occurred as the revenues from the parking garage camein lower than had been anticipated.

As a result, the foundation, which was initially rated BBB-minus by Standard & Poor'sand had been downgraded several times, was ultimately rated D on August 9, 2001. Theunderlying rating was revised by Standard & Poor's to NR on Sept 5, 2003, and carriesthe same designation from Moody's Investors Service and Fitch Ratings.

Meantime, Spokane's GO debt is rated A2 by Moody's and BBB by Standard & Poor's, with nounderlying rating conferred by Fitch.

Standard & Poor's downgrades of city GO debt from June 2000 through August 2001 werelinked to an element of the parking garage financing which presumed that the city wouldprovide monies from its parking meter revenue to support the operations of the garage,according to Kurt Forsgren, a director at Standard & Poor's.

"We used their reluctance and rejection of their obligations as a negative relative toour view of their outstanding obligations," he said.

Meantime, as the trial before Judge Edward Shea in the U.S. District Court in Richland,Wash., moved closer, Siddoway said the trial was a factor in bringing a settlementscheme before the council for a vote.

"A condition of the settlement would be that we not only want to pursue our claimsagainst the other defendants in the case but also take an assignment of the bondholders'claims to try and recoup what it cost us to settle the case," she said.

While Siddoway said she hopes the measure will garner the votes of at least five out ofseven council members, thus indicating a sufficient level of support, Gary Ceriani, anattorney at Davis & Ceriani and counsel for a majority of the investors, said asettlement of the case would be welcome.

"I think from the perspective of the funds, our position from day one has been that weneed to get paid and paid in full, and if this is a method which the city chooses toachieve that then that is up to the city," Ceriani said.

Unless there is a settlement, the trial looks set to proceed in less than three weeks'time.

"We've met with the council in executive session a couple of times, and they know whattheir options are," Siddoway said. "They know what the case looks like going to trial,and I guess they'll decide Monday night, but if they don't approve it then it is goingto be because they're prepared to go to trial and we are ready to go to trial."

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER