CHICAGO — Menasha, Wis., must turn over public records related to the operations of its now-shuttered steam utility plant to an investor who holds $2 million of the city’s $23 million of defaulted bond anticipation notes issued for the plant, a judge ordered yesterday.

The order from Winnebago Court Judge Karen Siefert came in a hearing yesterday on a lawsuit filed earlier this month by American Bank, which is among the plaintiffs in a separate pending federal lawsuit filed against the city that seeks to force it to make good on the appropriation pledge it made behind the Bans.

The latest complaint was filed in state court when investors became frustrated over Menasha’s refusal to turn over requested documents.

The city challenged the new lawsuit, saying the ongoing litigation in federal court is not yet in the discovery stage when documents are to be produced.

Siefert ruled that the city must turn over the information unless the federal court intervenes, according to Ice Miller LLP attorneys Michael Wukmer and Michael McNally, who represent American Bank and the bondholders behind the federal case.

City officials did not return calls to comment.

“After numerous promises to provide access to the public records and lengthy delays, the city of Menasha refused to provide the public records. This is an egregious violation of Wisconsin law,” American Bank said in a statement. “No acceptable explanation was given for the city’s refusal to provide access to the documents.”

The investors behind the lawsuits also voiced frustration over the city’s refusal to meet and discuss the default.

A proposed sale-leaseback of the steam plant’s assets could go to repay investors, but the investors have raised concerns over it.

“It appears that this proposal may be a step in the right direction, but even the city’s public account confirms that the proceeds from that sale of assets will fall far short of the amount needed to satisfy the delinquent obligations to the noteholders,” an investor statement read.

The proposed sale-leaseback is currently pending before the Wisconsin Public Service Commission.

Under the proposal, WPPI Energy — a regional wholesale supplier of power to 51 members, including Menasha — would purchase the utility’s distribution assets for $18.2 million.

The city would then lease the assets back in a 20-year deal. Any money it receives would go to help settle bondholder claims on the $23 million of defaulted debt and pending arbitration claims and regulatory fines.

The state and voters also must approve the deal.

The federal complaint was filed in September by American Bank, Lafayette Life Insurance Co. and Mercy Ridge Inc. They are seeking class action status.

The lawsuit alleges that Menasha and its utilities division “misrepresented” the plant’s business prospects and the true costs of converting it to steam operations.

The steam plant debt has strained city finances and hurt Menasha’s near-term ability to access the tax-exempt market following its Sept. 1 default on the notes.

With its eye on preserving its economic base, the city decided in 2004 to convert a portion of its electric generation plant to produce industrial steam, which could support area paper mills interested in purchasing steam from a central plant that used coal as its primary fuel in an effort to save money.

But the plant was burdened with growing construction costs, unfavorable regulatory rulings, and pricing disputes and failed to generate sufficient revenue to cover the costs of both operations and debt.

Menasha has another $14 million of taxable GO promissory notes issued for the plant. The city is repaying those notes with loans form the Wisconsin Bureau of Public Lands trust fund.

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