Branson Airport LLC, the owner and operator of an airfield in the Missouri Ozark Mountains that defaulted on $113 million of bonds, won the court’s blessing for a settlement that gives bondholders an equity ownership stake.
“The company, trustee, and majority bondholders reached a global settlement that, if consummated, would provide bondholders new debt and a majority of the equity in the company in full satisfaction of the existing Series 2007 Bonds and related bond documents,” reads the order granted last month by Hennepin County District Judge Elizabeth V. Cutter, allowing the trustee to proceed with the settlement plans.
Branson Airport LLC has struggled to come up with the revenue needed to repay the tax-exempt bonds as passenger levels and airline interest fell far short of initial expectations. The airport was built to serve the tourism industry in Branson.
After defaults, bondholders remained patient, granting the operators forbearance agreements that prevented them from enforcing their rights – including foreclosure– as long as various targets were met involving activity levels, revenues, and operating expenses.
The airport operators and bondholders and trustee eventually turned to settlement negotiations. The settlement would resolve bondholder claims and help the company raiseneed capital to pursue its business plan.
After exhausting reserves “the company has been unable to pay scheduled debt service to bondholders since January 2011” and “none of the original principal” has so far been repaid, according to the order.
“As of the date of the petition, the airport does not have scheduled air service,” the order reads. “The company informed the trustee that, absent a working capital infusion, the company may be unable to remain a going concern.”
Under the settlement, bondholders would receive a pro rata share of a new A series of bonds totaling $32.5 million in principal and a pro rata share of 65 % of the equity in the company and its affiliates BKG Branson Airport LLC, Branson JetCenter LLC, FlyBranson Travel LLC and Branson Land LLC, referred to as the “airport parties.”
Investors also may invest in $3 million of new B series bonds and a pro rata share of an additional 23% equity of the “airport parties” which would provide Branson Airport with working capital. The B bonds would have a liquidation preference over the A bonds if the company is liquidated while principal, interest or other fees or charges remain outstanding on the B bonds.
The new bonds may be taxable. A market participant said the ownership stake is a risky proposition but a sufficient number of bondholders thought it was the best option, given the defaults and the airport’s uncertain prospects.
The court order followed bond trustee UMB Bank NA’s petitioning of the probate court of Hennepin County District Court in Minnesota in a trust instruction proceeding for approval to move forward with the settlement.
“The global settlement remains subject to material conditions precedent," according to the latest trustee notice published on the Municipal Securities Rulemaking Board’s EMMA website. "It cannot be determined with certainty whether or when the transactions contemplated by the global settlement will be implemented.”
The latest bondholder notice and court order illustrates the troubled path that led to the global settlement.
“Financial distress has prevented the company from paying scheduled debt service to bondholders since 2011. Bondholders have in that time received a single interim payment in 2016 from extraordinary proceeds the company received,” reads the notice.
Since 2011, the airport’s operating income has exceeded expenses in just one year – 2013. “When total expenses are included, the company has reported an overall net loss every year since the airport opened in 2009,” the notice said.
Total gross company revenues for 2015, 2016, and 2017 were $1.7 million; $1.4 million; and $3.5 million, respectively. Current interest on the 2007 revenue bonds accrues at $6.8 million on an annual basis.
“Even if the company directed all of its revenues during this period to debt service on the Series 2007 Bonds (and left trade creditors, employees, and other vendors providing goods and services unpaid, which would be untenable over any meaningful period), the company could not have remained current on interest on the bonds,” court documents say.
Some of the bonds have recently traded at a little more than five cents on the dollar, according to data on EMMA.
The privately operated Branson Airport was built with the expectation that growing tourism in the Ozarks city would support debt repayment.
The airport owners last spring began pursuing a “strategic alternative process” and in June hired ICF SH&E as a financial advisor. Negotiations with bondholders led to the proposal. The trustee is represented by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC with William Kannel and Ian Hammel serving as lead attorneys.
The tax-exempt, unrated bonds were sold in 2007 by the Branson Regional Airport Transportation Development District on behalf of the private developers.
At the time, the project was billed as a first of its kind public-private partnership to finance the country’s first privately developed and operated for-profit commercial airport. The city provided subsidy payments under a pay-for-performance agreement. Branson Airport LLC owned the land but deeded it to Taney County, which then leased the airport to the development district, which in turn entered into a ground lease with the company.
Proceeds of the unrated deal, along with a roughly $25 million equity contribution from the airport developer and operator, financed the $140 million cost of acquiring, constructing, and equipping the new airport. The group won Federal Aviation Administration approval.
Citi served as underwriter, while Gilmore and Bell LLP was bond counsel. The deal included two series, one for $9.8 million of bonds not subject to the alternative minimum tax and $104 million of bonds subject to the AMT.
The three tranches included in the two series of bonds were structured as term bonds, with one due in 2025 and two due in 2037. They carried yields in the 6% range.
“The purchase of the series 2007 bonds involves a high degree of risk,” the offering statement said, and only qualified institutional buyers, meeting the criteria defined in Securities and Exchange Commission rules regarding their ability to undertake a risky investment and absorb the potential loss, could purchase the securities.
The bonds were secured by real and personal property interests held by the company, including the leasehold in the airport. Under the bond indenture, bondholders can demand immediate repayment of all principal and interest, terminate the airport's operating lease, and pursue legal action to capture revenue in the event of a default. In the event of an ongoing state of default, they also could eventually move to foreclose on the property.