CHICAGO – The trustee for $113 million of bonds issued for a privately owned and operated airport in Missouri’s Ozark Mountains and Branson Airport LLC is negotiating possible modifications to a forbearance agreement as the struggling airport seeks more time to bolster operations.
The negotiations are taking place amid mixed news. The airport’s prospects benefitted from the addition of Southwest Airlines which took over service provided by AirTran Airways. The airline also added daily service to three cities. But the airport faces the looming loss of federal support for its control tower due to sequestration.
The airport defaulted on bond terms in 2011 but won a reprieve from any bondholder enforcement actions in the form of a forbearance and funding agreement with trustee UMB Bank NA. Bondholders agreed to an extension and amended forbearance last year and an expiration date of June 30 is approaching. The agreement can be terminated or extended based on compliance with the terms.
The agreement imposed certain performance milestones and repayment terms on the airport operators and UMB reported earlier this year that the airport is currently not in compliance. UMB reported in a notice earlier this month that it agreed – at the direction of bondholders with a majority in principal holdings – to temporarily forgo any action permitted under the bond terms.
The airport also sought $250,000 in funds held by the trustee to cover operations. It raised a matching amount and the trustee freed the funds last month. The trustee indicated in its latest notice that no immediate enforcement is planned. “Bondholders are hereby notified that the bond trustee and certain holders of a majority in principal amount of the bonds outstanding are in discussions with the company regarding a potential modification of the Forbearance and Funding Agreement,” the notice reads.
The trustee also reported that it held about $3.6 million in funds as of April 1. Though the airport’s prospects have brightened, its losses have continued. The airport posted a $6.9 million operating loss last year which it attributed to significant start-up marketing expenses.
The trustee opted not to make a semi-annual interest payment of $3.4 million due Jan. 1. It did not make payments due in 2012 after dipping deeply into reserves to cover previous payments.
The tax-exempt, unrated bonds were sold in 2007 by the Branson Regional Airport Transportation Development District. Proceeds funded the airport, which was developed and owned by Branson Airport LLC. The airport opened in 2009 but it has fallen short of meeting initial service and passenger projections. The bonds are secured by real and personal property interests held by the company including a leasehold interest in the airport.
Airport executive director Jeff Bourk said in published reports that officials are working on “contingency” plans that will allow the airport to maintain service.
In March, the Federal Aviation Administration announced it would eliminate funding for 149 federal contract air traffic control towers phasing in a shutdown beginning April 7 as part of budget cuts under sequestration. The FAA has pushed back the action to June 15 to address legal challenges. The Branson tower was to have been shuttered May 5.
About 50 airport authorities and other stakeholders have indicated they may fund the tower operations themselves, according to the FAA. The closures will not shut down airport operations but could impact the ability of some pilots to use non-controlled facilities.
Under the bond indenture, bondholders can demand immediate repayment of all principal and interest, terminate the airport’s operating lease and pursue legal action to capture revenue in the event of a default. In the event of an ongoing state of default, they also could eventually move to foreclose on the property, according to the offering statement.
Private developers put together the financing package in 2007 to pay for construction of the facility, which opened in May 2009 to further build tourism in the city of Branson, the self-proclaimed live music capital of the country.