CHICAGO -Allen Park, Mich. is once again trying to get out from under a $31 million bond albatross.
The Detroit suburb has posted a notice on the Municipal Securities Rulemaking Board's EMMA web site outlining plans to tender the outstanding limited-tax general obligation bonds, which were issued in 2009 and 2010 to finance a failed film studio.
The city would need to issue new debt through the Michigan Finance Authority in order to raise the cash to pay off existing bondholders, according to the July 8 EMMA notice.
The notice said Allen Park hopes to post a tender invitation by the end of July, but that it would only do so if it was able to issue the refunding bonds through the MFA.
It's part of the city's effort to put an end to a bond-funded headache that has strained its anemic general fund for years.
The once-affluent Detroit suburb in 2009 and 2010 issued $31 million of bonds to finance a $146 million film studio at a time when Michigan had the country's most generous film tax-credit program.
But plans for the eight-stage studio soon fizzled after the state reined in the credits and the movie producer in charge of the project left for California. With no one leasing the vast facility, the city was forced to dip repeatedly into its general fund to cover the $2.6 million annual debt service on the project.
By 2012 the state of Michigan declared the city to be in a financial emergency. In November 2014, the Securities and Exchange Commission charged the city and two former leaders with fraud related to the debt, taking the rare move of charging the public officials as "control persons," and leading to a rare settlement that barred them from ever again participating in municipal finance.
City administrator Robert Cady, reached Tuesday, declined to comment on the tender. Robert W. Baird & Co., which Cady said is working with the city on the tender and the refunding deals, also declined to comment.
If Allen Park issues refunding bonds through the MFA, the new debt might feature a revenue-sharing intercept pledge, according to Standard & Poor's.
The price that the bondholders would get for their bonds will be published on a formal tender invitation.
"The city will consider proceeding with these plans based on then-current market conditions and the potential benefit of any such purchase to the city," the EMMA notice says. "Any proposed purchase of tender bonds by the city will be conditioned upon the successful completion of the issuance and delivery of the refunding bonds."
S&P downgraded the already junk-rated debt further into speculative territory on July 8, saying that it would consider any tender to be a distressed exchange. The ratings agency lowered its rating to CC from B-minus on the 2009 bonds and revised the outlook to negative from positive. It lowered to CCC-plus from B-minus the rating on LTGOs issued in 2002, 2003, 2005 and 2007. The outlook on the LTGOs is stable.
S&P also revised its outlook on the city's unlimited-tax GO bonds issued in 2003 to stable from positive while affirming its B-minus rating.
S&P added that the city remains in weak financial shape despite the state's appointment of an emergency manager, who left in September 2014.
"[W]e believe the city is still subject to inherent financial instability and that its budget is not structurally balanced, despite city projections that may indicate otherwise, given its reliance on debt restructuring and significant deferred capital costs," analyst Caroline West wrote in the downgrade report.
Allen Park sold the property that was at the center of the dispute in August 2014. Mayor William Matakas told The Bond Buyer after the sale that the city wanted to tender the outstanding debt within 90 days, but was hung up in part because of ongoing negotiations with the SEC.
The city sold the facility for an immediate payment of $3.2 million, 89 monthly payments of about $47,000 and a balloon payment of $5.9 million in 2022, according to Standard & Poor's.
The tender would apply to outstanding limited-tax general obligation Series 2009A and Series 2009B, according to the EMMA notice. The 2009A bonds are federally taxable and include $2 million that matures in 2019; $7.5 million that matures in 2029; $14.1 million that matures in 2039; and $195,000 that matures in 2029. The Series B bonds are recovery zone facility bonds. The outstanding debt includes $1.6 billion that matures in 2039; $265,000 that matures in 2019; and $955,00 that matures in 2029.
A chunk of the 2039 bonds with a 5.9% coupon was yielding 6.8% in trading on July 1, according to the EMMA web site.