CHICAGO — Struggling to meet traffic projections for its privately owned airport in Missouri’s Ozark Mountains, Branson Airport LLC has won some breathing room from holders of $113 million of airport bonds under a forbearance agreement that staves off any enforcement actions.

While Branson is current on all debt service payments through the use of bond reserves, its inability to cover its January payment with airport revenues triggered a default event. UMB Bank also used reserves to fully cover debt service last year. Semiannual interest payments total $3.4 million until July 2013, when principal repayment begins.

Airport officials and trustee UMB Bank began negotiations last year that led to the April signing of a forbearance agreement. In anticipation of the pact, UMB agreed to advance $500,000 from supplemental reserves to the airport for operations in the form of a secured note backed by a property pledge.

Under the forbearance and funding agreement, or F&FA, the airport owner can use a combination of up to $2 million from bond reserve funds and $3 million in additional equity or subordinated debt funds for working capital.

The funding is aimed at giving the airport some time for services and revenues to “become sufficient to meet all operating and debt service costs,” allowing the company to “stabilize its business,” according to a recent bondholder notice.

More than $8 million remains in reserves to cover future payments, according to bondholder notices posted on the Municipal Securities Rulemaking Board’s EMMA website.

Under the forbearance agreement, the trustee agrees not to take any enforcement measures allowed by the bond indenture in the event of a default. In that event, bondholders may demand immediate repayment of all principal and interest, terminate the airport’s operating lease, and pursue legal action to capture airport revenues. In the event of an ongoing state of default, they also could eventually move to foreclose on the property, according to the offering statement.

The agreement staves off any action until June 30, 2012. If the airport meets various terms involving activity levels, revenues, and operating expenses, the expiration is extended by one year.

The company’s aviation subsidiaries have pledged their assets as security to the bonds and two affiliates, Branson Land LLC and FlyBranson Travel LLC, also provide asset guarantees including property as part of the forbearance pact.

Private developers put together a public and private financing package in 2007 to pay for construction of the facility, which opened in May 2009 to further grow tourism in Branson, the self-proclaimed live music capital of the country. the Missouri city draws more than seven million tourists a year.

The unrated bonds were issued through the Branson Regional Airport Transportation Development District, which was established for that purpose. The debt is tax-exempt, though $104 million is subject to the alternative minimum tax.

The airport has continually added service, bolstering its prospects, but passenger counts remain far behind original estimates as the tourism and airline industries lag. Officials invited bondholders to the region last year to discuss final construction costs, current operating activities, financial results, service schedules, and efforts to expand air service in an attempt to sell them on its long-term prospects.

While the forbearance pact offers some breathing room, there’s no guarantee the extra time will solve the airport’s problems. In a notice earlier this month posting audited financial results, accounting firm Marks Nelson Vohland Campbell Radetic LLC makes that point.

The audit cites airport managers’ position that capital and equity investments will cover costs until operations can sustain the company.

“However, a breach of any of the terms and conditions of the F&FA agreement, including failure to reach specific revenue and expenditure goals, could result in acceleration of the company’s indebtedness, in which case the debt would become immediately due and payable,” the audit reads. “Although no assurances can be given, the company expects that it will be in compliance throughout the term of the F&FA agreement with respect to the financial and other tests.”

The airport reported a reduced flight schedule and slow commercial and general aviation traffic in the first quarter, which reflects tourism patterns, according to a filing earlier this month. A seasonal pickup in service begins in the current quarter. The airport is also working with the local convention and visitors bureau on a promotional campaign to improve business.

The airport’s audited 2010 financial results showed assets of $129 million, including $12 million in bond reserves and $110 million in property, and liabilities of $129 million. It collected $6.6 million in revenue in 2010 but had $9.5 million of operating costs, leaving it $2.9 million in the red. Reserves totaled $18.6 million at the close of 2009.

The airport also reported that it received its 2010 subsidy payment from the city of Branson under a pay-for-performance agreement. The city initially withheld its 2009 payment of $153,000. It later made the payment after the Board of Aldermen last July approved a revised pact, agreeing to pay the airport $8.24 per passenger based on federal records and subject to annual appropriation.

The revisions resolved city management’s concerns that payments made to a private company may violate Missouri law and its worries over how the subsidy would be calculated and that it go directly to debt service. The city now makes its payments directly to the nonprofit transportation district instead of the airport, and the payments will be forwarded directly to the trustee for debt service.

The airport submitted requests for roughly $257,000 in payments due for 2010 and the city amended its budget in December to include the appropriation, according to filings.

The 2007 bonds due in 2037 traded most recently at 40 cents on the dollars, up from a low of 33 cents in January, but down from 60 cents last October, according to trading activity posted on EMMA.

The bonds are secured by a pledge of the trust estate that includes rental payments owed under the operating lease. Branson Airport LLC owned the land but deeded it to Taney County, which then leased the airport to the development district.

The district then entered into a 45-year ground lease with the company that entered into an agreement with UMB, guaranteeing repayment of principal and interest and providing a secured interest in the property, and providing the trustee with the right to file a claim independent of the operating lease in the event of a default.

Only qualified institutional buyers, meeting the criteria defined in Securities and Exchange Commission rules regarding their ability to undertake a risky investment and absorb the potential loss, could purchase the securities.

The airline providing the most service at Branson is AirTran Airways, which has been acquired by Southwest Airlines in a transaction that closed this month.

Frontier Airlines and Branson AirExpress also serve the airport, which offers flights to and from Atlanta, Austin, Baltimore, Chicago, Dallas, Denver, Houston, and Milwaukee.

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