The Clay Gas Utility District of Clay County, Tenn., has extended a tender offer through Friday to buy back its bonds for 10 cents on the dollar.

The contingent tender offer was initially supposed to end on Feb. 8. However, the district extended the offer another nine days through a notice to bondholders.

District officials plan to fund the purchase of tendered bonds with $200,000 in cash and $114,000 of proceeds from a tax-exempt, subordinate-lien refunding bond to be issued on or before the settlement date.

The rural utility district sold $3.25 million of unrated, uninsured bonds in 1998 to build a natural gas distribution system and fund capitalized interest. Only $110,000 of principal was ever paid with bond proceeds in the early years.

Currently, $3.14 million is outstanding in maturities between 2001 and 2017. Some of the bonds traded late last year at near worthless prices.

The original bonds were sold by a division of Morgan Keegan & Co., which is the dealer for the tender offer. The firm holds about 25% of the outstanding principal, which it plans to sell in the tender offer.

The gas district in northeastern Tennessee was beset by financial problems from the beginning, including a project manager who went to prison for embezzling $200,000 a year after the bonds were sold.

Some 600 customers were projected at startup, but officials have said the customer base never grew after the embezzlement was publicized. The district has not paid any principal or interest on its bonds since June 1, 2001, and currently has 220 customers.

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