Beginning in 2011 Essex County, N.J., may need to repay bondholders on more than $2 million of outstanding debt, as the Garden State Cancer Center is in technical default on the loan.
The Essex County Improvement Authority sold $3.6 million of bonds on behalf of the Cancer Center in 1995.
The county pledged its guarantee on the debt if the borrower failed to make payments towards the bonds. Ambac Assurance Corp. insures the debt.
The center is in technical default as it missed two loan payments in July and January. US Bank, as trustee of the bonds, tapped $211.7 million of debt service reserve funds to meet principal and interest payments to investors on Dec. 1, according to a material event notice filed to the Municipal Securities Rulemaking Board.
US Bank has asked the borrower to replenish the debt service reserve fund by March 4.
The next payment to bondholders, for $217,000, is due June 1, according to county Treasurer Paul Hopkins.
He said there are sufficient funds in the debt-service reserve fund to meet 2010 payments to investors. If the center fails to make payments in 2011, the county would be required to pay principal and interest on the bonds at that time.
“They’re looking at their options,” Hopkins said. “If they cannot get things current, we the county and the Improvement Authority have remedies under the lease in terms of moving against [the center] to take control of the building and then liquidate assets at that time.”
The Series 1995 bonds have a little more than $2 million outstanding, according to Hopkins.
The Center for Molecular Medicine and Immunology, a nonprofit cancer research and treatment entity, established the cancer center in 1991 to serve as its clinical entity, according to the official statement for the Series 1995 bonds.
Reductions in spending at the state level have hurt the center’s balance sheet as it must operate with fewer funds.
“I think it’s probably driven by just the overall economic situation,” Hopkins said. “The cancer center pretty much functions on grants that it gets and from funding from the state. There’s been a lot of cutbacks on those programs, which give them the funding for their overall operating costs. So a lot of the grants that they have for specific research projects don’t necessarily cover all of their overhead.”
Bond proceeds helped finance the acquisition and renovation of the former Essex County Geriatric Center to house CMMI and the new cancer center.
At the time of the sale, total project costs were estimated at $56.3 million, with state and federal funds also supporting the development.