CHICAGO — Holders of $18 million of unrated debt issued for a large suburban Cincinnati mall are working to extend a forbearance agreement with the project’s owners, who have failed to make debt service payments on the bonds since 2008.

The Cincinnati Mall straddles two cities and two counties. It is located in a tax-increment financing district that has failed to generate enough revenue to cover bonds issued in 2004 for infrastructure improvements.

Past owners as well as the current owner, Cincinnati Holding Co., have defaulted under bond covenants by failing to make debt service payments for years, according to an Aug. 19 investor disclosure posted on the Municipal Securities Rulemaking Board’s online EMMA system.

The bond trustee, US Bank NA, has tapped — and drained — a debt service reserve fund to cover payments since 2009.

Since then, the trustee has not had sufficient funds to cover last year or this year’s debt service payments.

The bondholders in March worked out an agreement with the mall’s owners to receive payments on a five-year installment plan rather than pursue the matter in court, the notice said.

Among other things, the agreement required that the mall’s owner begin to repay delinquent taxes and special assessments to Hamilton and Butler counties.

The bonds are payable solely from TIF district payments — expected at the time of issuance to be the main repayment source — with additional security from special assessments.

Since the agreement was crafted, the owner has been making the payments. The trustee said it anticipates receiving approximately 85% of the total payments, according to the investor notice. The agreement expired on July 31, and the trustee and bondholders are working to extend it.

The Port of Greater Cincinnati Development Authority issued $18 million of special obligation development revenue bonds in 2004 on behalf of the project, then envisioned to be an upscale suburban shopping destination.

“The mall has always struggled since it was built,” said Keenan Rice, president of Municap Inc., which acts as administrator for the bonds. “It’s just been a failed project.”

The property has changed hands several times, and a recent owner appealed the property tax value, which the county then reassessed almost at less than the original base value. The reduced assessment eliminated any increment that would have been generated in a TIF district to pay off the bonds.

But the special assessments that act as the backup pledge should be enough to pay off the debt, according to Rice.

“If the payments are made, that should allow us to get caught up on the bonds,” he said.

Neither the cities, counties, nor the Cincinnati port authority have any legal obligation to make payments on the bonds.

The debt is not secured by a mortgage or any other assets, though Ohio law allows a county to foreclose on a property whose owners have failed to pay special assessments, which is a likely scenario if payments lapse again.

The bonds are not allowed to be accelerated and the remedies available in case of a default will be dependent on the court system, according to original bond documents.

“The bonds involve a high degree of risk and may not be a suitable investment for all persons,” the 2004 official statement warns.

“Prospective purchasers should … be able to bear the risk of loss of their investment in the bonds.”

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