The Magen David Yeshivah in Brooklyn has received a forbearance from its insurer after failing to meet its financial obligations on a $38.5 million bond issuance.

The nonprofit religious school could have faced accelerated principal repayment or property foreclosure on the tax-exempt bond issuance without the forbearance from ACA Financial Guaranty Corp. The insurer, which also has a security interest on the property, agreed not to direct the trustee to pursue those remedies.

The Jewish school serves approximately 2,500 students from nursery school through high school. It has been confronted by lower donations and needier students during the economic slowdown, according to a school official.

The goal of the forbearance agreement is to bring everything back into compliance, including the replenishing of the debt-service reserve, said Susan Hooker, ACA’s chief risk officer. There is no time line for the agreement, she said.

“We just paid a claim on our policy,” Hooker said. “To the extent there are shortfalls in principal and interest going forward we will continue to pay claims on our policy, and we’re working with the borrower to get the facility to the point where it can cover the debt service on its own.”

The New York City Industrial Development Agency issued $38.5 million of tax-exempt bonds on behalf of the school in 2002, secured by a lease. Magen David used the bond proceeds to acquire property and build a new elementary school in the Gravesend section of Brooklyn to replace an older facility.

Magen David’s failure to pay rent on time as required under its lease agreement, failure to replenish withdrawals from its debt-service reserve fund, and failure to provide audited annual financial statements on time for the last two years constitute events of default according to disclosure documents from the trustee, U.S. Bank.

U.S. Bank declined to comment.

Payment of interest and a mandatory sinking fund redemption were made June 15 using funds from Magen David, the entirety of the bonds’ debt-service reserve fund, and payments from the bond insurer, according to a disclosure notice.

Debt service on the bonds, including principal and sinking fund installments paid semi-annually, is estimated at $2.9 million for 2010, according to the official statement.

Calls to Magen David president ­Eddie Esses were not returned. “There will be maybe two years where there will be some shortfall,” said a Magen David official who was not authorized to speak for the school, but is familiar with its finances. “The ACA insurance will cover it, then full payments will resume by us and in the process pay ACA back.”

The bonds were sold as term bonds maturing in 2013 and 2027.

Credit Lyonnais Securities USA Inc. underwrote the debt. Nixon Peabody LLP was bond counsel. At the time of issuance, Standard & Poor’s rated the bonds A based on the insurance. In 2007, the rating agency downgraded ACA to junk, and today it no longer rates the insurer.

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