ALAMEDA, Calif. — Holders of Chowchilla, Calif.’s 2005 lease revenue bonds will get their most recent interest payment, after the trustee emptied out the last of the debt-service reserve fund.
The financially strapped city chose not to appropriate its lease payments for the current fiscal year. Those payments backed $5.9 million of Chowchilla Public Financing Authority bonds that financed renovation of a commercial building into Chowchilla’s civic center.
Trustee U.S. Bank issued a notice Friday saying it will pay the $117,565 Jan. 1 interest payment on Monday by emptying out the debt-service reserve.
As a result, the trustee has withdrawn the claim it filed with bond insurer Syncora Guarantee, the disclosure notice said.
As part of the agreement, the city agreed to pay the trustee $10,500, to cover a $479 shortfall in the debt-reserve fund and create a small reserve for trustee fees and expenses.
“The small amount of this reserve for trustee fees and expenses may severely limit the ability of the trustee to pursue remedies,” according to the disclosure statement.
City officials didn’t pay this year’s $367,000 lease payment to help bridge a general fund budget gap of more than $1 million on only $4.1 million in revenue.
After the City Council voted in June not to appropriate the city hall lease payment, Chowchilla defaulted July 1 on an interest and principal payment, which was paid from the debt-service reserve.
The recession hit Chowchilla hard. Its 17.9% unemployment rate is considerably higher than the statewide 12.4% rate.
The city is located in the agricultural Central Valley, about 30 miles north of Fresno and 140 miles south of Sacramento. The population of 18,700 includes 7,700 prisoners at its two state prisons.
It remains unclear whether the city will resume paying its civic center lease next year.
Some bondholders have already cut their losses.
In December, a customer sold a block of the 2029 maturity for 38 cents on the dollar, according to Municipal Securities Rulemaking Board data, while the 2035 maturity traded at 43 to 44 cents in November.
The bonds came to market in 2005 wrapped with insurance from what was then XL Assurance, which then had triple-A ratings. The bonds carried no underlying rating.
Syncora currently carries a Ca rating and a developing outlook from Moody’s Investors Service.
Standard & Poor’s assigns the credit an R for “regulatory intervention.”