CHICAGO — The trustee for $39 million of appropriation revenue bonds issued for a failed artificial sweetener plant in Moberly, Mo., has decided to give up on efforts to sell the half-built plant to a new developer and now intends to auction off the project's assets this fall.
The decision marks the latest development in a saga that unfolded over the last year leaving bondholders in the lurch, raised questions over Missouri's economic development assistance policies and resulted in Moberly's loss of investment-grade status. Local, state and federal regulators are conducting probes of the project's failure.
Trustee UMB Bank NA reported in a bondholder notice published last week it would proceed with a liquidation and auction process of all remaining assets of the plant abandoned last year by China-based Mamtek US Inc.
Officials are reviewing a proposal from a joint venture made up of Counsel RB Capital LLC and Aaron Equipment Inc. to conduct the competitive auction. Real estate company Zimmer Cos. is also expected to assist in the process.
Standard & Poor's in March downgraded to D from CC its rating on the $39 million issue that was sold in three series by the Moberly Industrial Development Authority in 2010 to help fund construction of the artificial sweetener plant.
The action was prompted by UMB's decision to hold onto reserves to cover various legal and other expenses instead of making a March debt service payment.
The bonds were initially rated A-minus, one notch below the city's rating at the time of A.
The company failed to make required debt service payments last summer and the city in turn refused to make good on the appropriation pledge it had put behind the bonds.
UMB used reserves to cover a Sept. 1 payment.
The city's decision prompted Standard & Poor's to drop the city's issuer credit rating to B. The city also handed control the project over to UMB.
UMB holds nearly $2 million in a project fund and reported in the notice last week that it would distribute those funds under the bond indenture's rules to holders of the Series B bonds on Aug. 6. About $3 million remains outstanding in the B series.
UMB in January hired Equity Partners CRB LLC to help manage the marketing of the plant to another company in hopes it would take over development and establish a viable business.
The adviser spent the last four months marketing the facility through advertisements, press releases and directly with groups that might be interested.
"While there were a number of groups that signed confidentiality agreements, neither CRB nor the trustee received any offers to purchase the Mamtek assets as a going concern," the notice read. "The trustee is now prepared to proceed to a liquidation/auction process that involves the sale of the Mamtek assets, in parts and whole, for the highest price."
The auction sale is anticipated to occur in the fall of 2012, the notice said.
The city and its industrial development authority issued a press release last week critical of UMB's decision. The city reported receiving two proposals to develop the site.
"Apparently because each of the proposals requested some degree of financial involvement by bondholders, the trustee rejected both without attempting negotiations, terminated marketing efforts, and is now seeking a liquidation sale of the assets," the release said.
In other developments reported in the disclosure notice, UMB said the bankruptcy trustee Bruce Strauss is analyzing possible claims against former Mamtek officers, directors and other parties involved in the project.
Any funds would be distributed pro rata to creditors, of which the bond investors so far hold the largest claim. The trustee and other creditors forced the company into involuntary bankruptcy after its abandonment of the project.
Strauss has already filed a lawsuit against former Mamtek president Bruce Cole and his wife for recovery of certain claims and breach of fiduciary duty.
After learning the couple planned to sell their home, Strauss obtained a court order providing that $868,000 of equity in the house could not be distributed without further court action.
'While litigation is uncertain, and there is no guarantee of the ultimate outcome of the case, based on Mr. Strauss' analysis to date, it appears that these monies will ultimately be available to the bankruptcy estate for either a judgment or settlement of claims against the Coles," the notice read.
UMB is still waiting for a final default judgment against Mamtek International and its local subsidiary filed in the Eastern District of Missouri federal court.
After the final judgment has been entered, UMB said it would be in better position to pursue Mamtek officials on potential breach of fiduciary duty and other claims.
Most recent trading of the bonds showed a drop in price to 21 cents on the dollar from 33 cents.
An investor who holds a small chunk of the bonds earlier this year filed a lawsuit against underwriter Morgan Keegan & Co. and underwriter's counsel Armstrong Teasdale LLP, accusing them of providing false and misleading information in the offering statement.
The firms deny the charges and said they will vigorously challenge them.
In addition to the bonds backed by Moberly's dishonored appropriation pledge, Missouri approved $17.6 million in assistance, though the state funds were never turned over.
Attorney General Chris Koster is jointly investigating the project with local prosecutors, and the Securities and Exchange Commission has issued subpoenas in connection with the financing.
Lawmakers debated bills earlier this year that would affect future economic development bonds following hearings on the project, but took no action.