CHICAGO — Suburban Cincinnati’s largest mall has failed to make its last two debt service payments — and is not expected to make its upcoming payment in February — leaving the Port of Greater Cincinnati Development Authority and a pair of suburbs scrambling to figure out how to pay the debt once the reserve fund is drained.

The owners of the Cincinnati Mall, located in the two suburban cities of Forest Park and Fairfield, have not made debt service payments since taking over the struggling retail complex in late 2008, according to officials. Since then, the port authority, which issued $18 million of special obligation revenue bonds in 2004 to pay for infrastructure improvements at the mall, has tapped the debt reserve fund to make last year’s two payments.

The authority is expected to tap it again to make the Feb. 15 payment — a move that will likely drain the account, said Forest Park finance director Harlita Robinson.

“The authority has said that we’ll be fine for the February payment, and we’re starting to talk about how to prep for August,” she said. “I’m talking to my bond counsel and the city of Fairfield to figure out what the city’s position is now that this particular debt has no payback mechanism. This is DefCon 5.”

A big part of the problem is that the mall is located in a tax increment financing district that has failed to generate enough property tax revenue to cover annual debt payments. Once reportedly valued at $160 million, the mall is now valued at $27 million. Local reports have said that vacating retailers have left half the giant mall vacant.

The bonds are payable first from the TIF revenues and then from special assessments the cities levy on the land. It’s those special assessments that the mall’s owner, Cincinnati Mall LLC — reportedly a pair of real estate firms, one located in Georgia — has stopped paying, according to Robinson.

Debt payments in 2010 are estimated to total $1.4 million, according to an annual disclosure and assessment report prepared by financial advisory firm MuniCap Inc.

Total 2010 obligations include two interest payments for $554,313 in February and August, a principal payment of $315,000 in February, a port authority fee of $43,575, administrative expenses totaling $180,000, and an estimated reserve fund replenishment of $219,407, the report said. As of June 30, 2009, the balance in the bond fund was $343,894.

Port authority director Kim Satzger declined to speculate on the situation except to say the agency is working on the issue.

“We are monitoring the situation very closely,” Satzger said. “We are working very closely with all the public sector partners involved, and we take our fiduciary responsibility to the bondholders very seriously.”

The Cincinnati Mall first opened in the late 1980s and featured upscale stores, but has since been sold several times, most recently in late 2008.

If the property is sold again — or goes into foreclosure — it could solve the problem, as all taxes are generally brought up to date in the event of a sale, according to Robinson.

“It may sell tomorrow and it’s a non-issue,” she said. “But we have to proceed trying to make sure we make that August payment.”

Forest Park and Fairfield are both working with Peck Shaffer & Williams LLC as bond counsel. The authority’s bond counsel is Squire, Sanders & Dempsey LLP. Officials are currently evaluating the obligation of the suburbs with regard to repayment of the bonds.

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