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San Jose Redevelopment Default More Likely After Brown Veto

OCT 4, 2011 7:38am ET
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SAN FRANCISCO - California Gov. Jerry Brown has vetoed legislation that would have helped the San Jose Redevelopment Agency and at least one other agency avoid a default triggered by expiring letters of credit.

The overall bill was designed to clean up several aspects of this year’s major redevelopment legislation, in which redevelopment agencies were abolished unless they agreed to make payments to support the state general fund as part of a “voluntary alternative redevelopment program.”

The fate of the redevelopment legislation is in legal limbo pending a decision by the state Supreme Court expected in January; in the meantime, agencies are barred from engaging in any financings.

That has prevented the San Jose redevelopment agency from extending a JPMorgan LOC that expires Nov. 25, which supports $100 million in variable-rate debt.

Bondholders will be fine – the event will trigger a bond tender.

But the expiration of the letter and ensuing tender will immediately obligate the San Jose RDA to repay the full amount drawn by the trustee – money that the city and the agency don’t have. A similar situation exists with the Rocklin, Calif. redevelopment agency, which faces a $3.4 million letter of credit balance.

The bill Brown vetoed late Monday afternoon specifically permitted redevelopment agencies to extend expiring letters of credit.

“Until the court issues its ruling in this case, it would be premature to consider the modifications proposed in this bill,” the governor wrote in his veto message.

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