Bond trustee negotiates deal with bankrupt New Orleans archdiocese
The trustee for bonds issued on behalf of the bankrupt Roman Catholic Church of the Archdiocese of New Orleans negotiated a settlement that allows bondholders to be paid interest — but not principal — during the pendency of the case.
The diocese filed for reorganization under the weight of sexual abuse claims in May, with $38 million of outstanding revenue bonds among its debts, according to filings in the United States Bankruptcy Court for the Eastern District of Louisiana.
TMI Trust Co., trustee for the bonds, negotiated the settlement with the archdiocese that the court approved, TMI said in a material event notice posted on the Municipal Securities Rulemaking Board’s EMMA filing system Wednesday.
"The order approving the settlement agreement provides that, during the pendency of the bankruptcy proceeding, the archdiocese is authorized to pay interest due on the bonds according to the payment schedule provided for in the bond documents," TMI's notice said. "Bondholders will not receive payment of any principal due on the bonds during the pendency of the bankruptcy proceeding."
TMI said the archdiocese paid the missed July 1, 2020 interest payment on the bonds, and that bondholders will be paid on Nov. 20.
The missed interest payment that will be paid totals $930,206.25, but the missed annual principal payment of $1.385 million remains unpaid, according to the settlement, which also states that TMI did not agree to support a plan of adjustment.
Matt Fabian, a partner at Municipal Market Analytics, said there are several reasons why the archdiocese agreed to negotiate with the trustee, including the fact that the debtor may get more time to restore payments and fix covenant violations.
"Bondholders getting their coupons throughout [the bankruptcy case] could be to preserve their goodwill and/or long-term confidence in the borrower more generally, aimed at facilitating some kind of distressed exchange via the plan of adjustment," Fabian said Thursday, adding that the payments may also avert more aggressive motions being filed during the case.
"On the other hand, the lack of principal payment is to keep all bondholders equal and not cash some out at par, leaving the others behind," he said. "That seems very likely, and it’s typical in a debt restructuring."
U.S. Bankruptcy Judge Meredith S. Grabill approved the settlement Nov. 2. It contains the agreement between TMI and the archdiocese.
The Louisiana Public Facilities Authority sold $41.9 million of revenue refunding bonds on behalf of the archdiocese in March 2017. At the time, Fitch Ratings rated the bonds A, and Moody's Investors Service rated them Baa1.
The debt was issued as a general unsecured obligation of the archdiocese.
Fitch did not mention the ongoing problems with abuse claims confronting the New Orleans archdiocese in its rating report on the refunding on Feb. 22, 2017.
Moody's, however, said that the "potential exposure to litigation for sexual misconduct lawsuits" was a credit challenge in its Nov. 18, 2016 rating report. The report was released then, but the bond issuance was delayed until March.
The New Orleans archdiocese, similar to many other Roman Catholic dioceses, is exposed to financial and reputational risks associated with sexual misconduct claims against archdiocesan clergy, employees or volunteers, Moody's said, noting that archdiocese had implemented several initiatives and policies that lessen future litigation risk.
New Orleans Archbishop Gregory Aymond has released a list of 72 credibly accused clergy, at least seven of whom were still alive as of Oct. 21, according to a story on NOLA.com.
When the archdiocese filed for bankruptcy, Fitch downgraded the bonds to CC from A, while Moody's dropped its rating to B1 from Baa1 and placed the rating on review for further downgrade.
When the archdiocese defaulted on its July debt service payment, Fitch lowered its rating to D from CC, and Moody's dropped its rating to Caa1 from B1 and removed the rating from watchlist for potential downgrade.
While the settlement agreement was being negotiated, the U.S. Trustee for the bankruptcy case removed TMI from the unsecured creditors committee. TMI has asked the judge to reinstate TMI as a member of the committee or order that a separate committee be appointed.
Detailed information on the bankruptcy case, including the docket and access to court filings, can be found at Donlin, Recano & Co.