CHICAGO — The trustee for $27 million of defaulted lease revenue bonds sold by Vadnais Heights, Minn., to finance a sports complex received three final offers from potential buyers that range from $10.5 million to $13 million.

US Bank NA notified bondholders of the latest developments in its efforts to recoup bondholder investments in a notice this week. A bondholder teleconference to discuss the bids is slated for Oct. 23, according to the notice.

The trustee hired Marcus & Millichap Real Estate Investment Brokerage Company earlier this year to market and sell the Vadnais Sports Complex. Final written offers from parties who had submitted the "highest and best offers" were received by Sept. 18.

The three offers under consideration include a $13 million offer from Northern Estate VSC LLC; a $10.65 million offer from Gem Lake Lodge, an affiliate of White Bear Lake Hockey Association; and a $10.55 million offer from Ramsey County.

Only Ramsey County's offer would not require financing or some debt conversion agreed to by current bondholders. A total of 23 buyers expressed interest. The next best offers were in the range of $8 million.

The conference call will include an update on the project's operations and performance, a discussion of the purchase offers, and a discussion of other strategic alternatives for the project. Both the broker and the facility's management company will participate.

The trustee cautioned that no decision would be made until after discussions with bondholders. "Any proposed sale of the project would also be subject to the trustee's receipt of a court order approving the sale. Bondholders would have an opportunity to participate in any such court proceedings," the notice said.

The city of Vadnais Heights in 2010 sold the bonds through its economic development authority to finance construction of the complex. The city of 12,000 is located outside St. Paul.

The bonds were supported by a master lease agreement and repaid with those lease payments. As the complex struggled, the city subsidized debt service but the council decided last year it could no longer afford the assistance and cancelled its lease and aid. The city argued it was simply exercising its legal rights under the lease agreement.

In 2011, the facility generated $300,000 toward $1.6 million of annual debt service on the bonds that mature in 2041. The city provided $500,000 to fully cover an August 2012 debt service payment. Under its master lease agreement, Vadnais Heights is able to decide annually whether to cancel the lease.

The project failed to generate sufficient revenues to cover the full principal payment owed on the bonds in February of this year or to cover interest due on $2 million of unrated subordinated series D bonds.

The trustee tapped reserves to make the full debt service payment due Feb. 1 on three parity series of bonds totaling $25 million. Previously, events of default had been triggered, but the Feb. 1 principal default marked the first payment default. The trustee also tapped reserves to cover interest on the three parity series of bonds due in August.

The decision to renege on the lease and eventually default prompted Moody's Investors Service and Standard & Poor's to strip the city of its investment grade general obligation ratings.

The trustee has warned in prior notices that any potential sale is not expected to generate enough to repay all principal and interest owed on the bonds. Bondholders would receive the net proceeds after various fees and expenses and a broker's commission are paid.

The proceeds were used to acquire 10 acres of land and build the 100,000-square-foot domed multi-sport facility with a two-rink ice arena. The city served as the tenant, leasing the facility for a rental payment equal to the its annual operating budget, including debt service.

The bonds have traded most recently in the 30 cents to 40 cents on the dollar range.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.