CHICAGO — The city of Allen Park, Mich., is preparing to refinance up to $28 million of bonds that were the target of fraud charges and a settlement announced this week by the Securities and Exchange Commission.
The city, working with the state government, has been preparing to refinance the bonds over the last two months even as it worked out a settlement with the SEC, according to the city's current mayor. The SEC announced the charges and settlement Thursday with the Detroit suburb, only recently released from state emergency management, and two former officers who oversaw the transaction.
"They've been working on this deal for 60 days and part of the thing that hung us up was the SEC," said Mayor William Matakas.
The city hopes to see significant interest rate savings from the transaction, Matakas said.
In April, Standard & Poor's revised its outlook for the city to positive from stable, while affirming its speculative-grade B-minus underlying rating.
The city hopes the positive outlook revision will also mean savings, Matakas said.
The date and structural details of the transaction are unclear. State government officials declined to comment, citing securities laws and regulations.
The SEC charged the city, former Mayor Gary Burtka, and former city administrator Eric Waidelich with fraud in connection with the original $31 million bond deal sold in 2009 and 2010 to finance a movie studio project in the city.
The SEC found that offering documents provided to investors during the city's sales of the general obligation bonds contained false and misleading statements about the scope and viability of the movie studio project, as well as Allen Park's overall financial condition and its ability to pay debt service.
The city, Burtka, and Waidelich agreed to settle the SEC's charges. Waidelich agreed to be barred from participating in any municipal bond offerings and to cease and desist from further violations. Burtka agreed to pay a $10,000 penalty as well as to cease and desist from violations and be barred from future offerings. Both men agreed to the settlements without either admitting or denying the SEC's findings. The city agreed to cease and desist from violations as well as to strengthen its disclosure policies and training.
Among other things, the city must provide original documents to its bond counsel and financial advisor when issuing bonds, Matakas said. The city, for example, must provide original lease documents or environmental assessments.
Allen Park sold the troubled property that was at the center of the federal investigation in late August.
The sale triggered a 90-day window under the original bond documents that allows the city to redeem the bonds, said Matakas.
"We have the right to call the bonds and we want to pay them off, but the only way we can do that is by reissuing other bonds," he said.
The main building, where the film studio was to be built, is now leased to an automobile parts company. The $12 million property sale and the lease will help the city staunch its fiscal bleeding, the mayor said.
Allen Park had been paying $400,000 in operating expenses on top of the $2.6 million debt service payment annually, he said.
"It'll stop the operating bleeding and we're hoping for a $1.2 or $1.3 million annual payment after the refinancing," said Matakas. "Because of the economy we're not going to get the money out of this building we paid for it, but I ran with the idea that we had to sell," he said. "Suddenly it will be generate about $100,000 for the city in future taxes."