Puerto Rico Fund Covering Default at Trump-Run Golf Course

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A public Puerto Rico fund is covering coupon payments in the aftermath of a golf club’s bond default.

The Coco Beach Golf & Country Club S.E. sold $26.4 million of tourism revenue refunding bonds, issued through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) in March 2011 for the Trump International Golf Club Puerto Rico project.

The bonds refund $18 million in tourism revenue bonds sold in 2000 and $7.5 million in tourism revenue bonds sold in 2004 to build a high-end resort golf course. They’re supported by a letter of credit from the Puerto Rico Tourism Development Fund.

The Coco Beach club has made more than 20 unscheduled draws on its debt service reserve going back to December 2011, according to the Municipal Securities Rulemaking Board’s EMMA website.

On Tuesday, Coco Beach president Jorge Díaz notified the Municipal Securities Rulemaking Board of four technical defaults in the previous month.

Coco Beach drew on the debt-service reserve on Aug. 16 and failed to cure the draw within three days, constituting a default on the loan agreement.

On Aug. 27 the bond trustee drew $122,235 from the tourism fund’s letter of credit to cover the draw on the debt service fund. Coco Beach’s failure to reimburse the fund is a default on the reimbursement agreement.

On Aug. 19, Coco Beach failed to deposit to the bond fund $122,124 for the payment of Nov. 20 interest due for the bonds. That constituted defaults under the loan agreement and, after 10 days passed, on the reimbursement agreement.

The bonds were for two Trump International Golf Club Puerto Rico 18-hole golf courses, a clubhouse and related facilities. The Trump Organization is not the owner of the property, said Eric Trump, son of Donald Trump and executive vice president at the Trump Organization. The Trump Organization runs the golf courses, Eric Trump said.

The connection between the Trump Organization and Coco Beach Golf and Country Club started around six or seven years ago, according to Trump.

The bond default issue “has nothing to do with the Trump Organization,” he said.

The Puerto Rico Tourism Development Fund issued a stand-by letter of credit securing payment of the principal and interest on the bonds. The fund is paying the bonds, Díaz said.

The fund is liable to pay up to $231 million in principal plus interest, according to Standard & Poor’s, which has a BBB-minus rating on the bonds with a negative outlook.

“As a project that would help boost the tourism component of Puerto Rico’s economic development, the Trump International Golf Club, formerly Coco Beach Golf & Country Club, was eligible to avail itself of the benefits of the type of conduit financing offered by AFICA,” the Government Development Bank for Puerto Rico said.

Over the last three or four years there have been economic difficulties in Puerto Rico, Díaz noted. They have worsened in the last five or six months, leading to Coco Beach’s inability to make the bond payments, he said, adding that hopefully conditions will improve soon, he said.

Other Puerto Rico private golf clubs are struggling and some are defaulting on bond payments, Díaz said.

Janney Capital Markets managing director Alan Schankel said the situation should not be worrisome to bond investors. “I think bondholders will be paid because the amount is not large in the context of government’s financial obligations and failure to pay would send a very negative signal to the market.”

“I do not expect this type of problem to be widespread,” Schankel said. The most recent financial statement from the fund is as of June 30, 2012.

“The 2011 financials list $518 million of guarantees including this one,” he said. “I do not know the status of the other situations.”

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