The Georgetown Special Taxing District in Connecticut received a forbearance last week on $1.5 million of tax anticipation notes after failing to pay them on time.
The district was unable to pay the notes on June 30 because it had not collected property taxes from a stalled mixed-use development. The project and district are located on a 51-acre tract in the town of Redding in affluent Fairfield County
The district sold the notes in December and March to ensure that it complied with the terms of a 2006 bond sale.
The forbearance gives the district two months to figure out what to do without defaulting on bond payments. The failure to make the payment by June 30 constitutes a technical default, according to disclosure documents.
In 2006, the district sold $14.5 million of tax-exempt bonds for infrastructure projects at the site of a former wire mill that was to be developed by Georgetown Land Development Co.
The former Banc of America Securities LLC underwrote the unrated bonds. Shipman & Goodman LLP was bond counsel.
The development plans called for new construction and re-purposing of existing buildings to create 416 units of housing and more than 300,000 square feet of commercial, retail, and civic space with a 12-acre pond at its center.
The district also issued $5 million of general obligation bonds in 2008 directly to the U.S. government through the Department of Agriculture Rural Development utilities program for upgrades to a sewage treatment plant. The plant is fully operational after the upgrade, according to disclosure documents.
“Georgetown Land Development Co. is not meeting its tax obligations, so therefore the taxing district is not collecting the tax revenue that it needs,” said Chris Lynch, project manager for the developer.
The forbearance agreement “basically bought the taxing district time to come up with the payment,” he said.
The noteholder, Jast Tan Investments LLC, is controlled by Rocco Trotta, who is also the managing member in the development company.
“Rocco did this to keep the taxing district afloat,” Lynch said of the note deal.
One possible resolution to satisfy the note obligation is to transfer tax liens owned by the district to Jast Tan, according to disclosure documents.
The initial plan was that the developer would acquire the property, get the necessary approvals in place, upgrade a sewage treatment plant, and then sell the land to another builder or builders, Lynch said.
“The timing didn’t work out that way because when the approvals were in place, it was 2006, just at the onset of the housing crisis,” Lynch said. “We’ve just been treading water since 2006 for the most part.”
The developer is currently talking to potential buyers, he said.
“It’s really a condition of the market,” Lynch said. “We’re anxious to move forward, but until the market allows you [to do that] there’s not much you can do.”
This is not the first time the district has encountered difficulty repaying its obligations.
In January 2009, Chicago-based Brownfield Renaissance Partners LLC purchased a majority of the outstanding bonds at a substantial discount, according to its president, David Rosenbaum.
“We, like other bondholders in a development project like this, are concerned about the development timetable in the context of the current economic and real estate capital markets environment,” he said.
The firm understood the project’s difficulties when it bought the bonds. It purchased $500,000 of notes from the project to keep it afloat in March 2009. The district needed more time to repay the notes but did so in cash after an extension, Rosenbaum said.
“It’s certainly our hope and expectation that this project will be recapitalized, which is the only way the project will ultimately be successful,” he said.