CHICAGO — Michigan's retirement systems are again being forced to pick up the tab after a struggling Pontiac-based film studio has missed its second debt-service payment this year.
The State of Michigan Retirement Systems paid $630,000 on Aug. 1 to bondholders after bond trustee US Bank NA informed the state earlier this week that Raleigh Studios LLC had not made its payment.
It's the second time the state has stepped in — SMRS paid $420,000 of the $630,000 payment that was due Feb. 1. Payments are due in February and August.
The state is required to make the payments because it lent its pledge, an unconditional guarantee, to $18 million of privately placed tax-exempt bonds sold in 2010 to finance the project.
The agreement featured a forbearance period of seven years, so the SMRS can't take lien enforcement action until 2017, according to Michigan Treasury spokesman Terry Stanton.
The state could be required to make all debt service payments on the bonds for the next 10 years if the studio fails to pay.
The defaults come more than a year after the film studio opened in March 2011. It has struggled to attract tenants and has been unable to generate enough revenue to make payments, according to the state. Phone calls to the studio were not answered.
The $80 million project, one of Michigan's largest film studios, was expected to bring thousands of jobs to Pontiac, a town that is under state-controlled emergency management. It benefited from generous tax credits, exemption from most property and income taxes for 15 years, and up to $4 million in federal funding.
Raleigh leased its space for most of 2011 to the Walt Disney Co., which used it to film "Oz: The Great and Powerful." Recently, it leased two of its seven sound stages to Warner Bros. for a film, according to a report in the Detroit Free Press.
The Oakland County Economic Development Corp. in 2010 was the conduit issuer for $28 million of recovery zone facility bonds to finance the film studio. The bonds were sold in three series. The largest, worth $18 million, has an unconditional guarantee from the state's retirement systems. The bonds to not have backup pledges from the county or Pontiac.
Raymond James & Associates Inc. privately placed the $18 million series with a handful of large institutional investors. The rest of the debt, a $5 million series and a $4.8 million series, was purchased by affiliates and family of the borrower.
The project was launched amid former Gov. Jennifer Granholm's generous film-studio credit program. Gov. Rick Snyder has since gutted the program, sparking a decline in the number of film- and television-related projects launched. The program won some additional appropriation in the upcoming 2013 budget.
Revenue projections in the original bond documents showed steady growth for the studio, with gross profits reaching $14 million annually within the next decade.
