CHICAGO — Bond insurer ACA Financial Guaranty Corp. will present a restructuring plan next week to holders of $160 million of defaulted debt issued by a Chicago suburb for a struggling hotel and conference center.
The restructuring deal was struck between ACA, which provides coverage on one series for $53 million, and officials from Lombard, which has reneged on its pledge to cover revenue shortfalls needed to avoid debt service defaults.
Bond trustee Amalgamated Bank of Chicago said it was directed by ACA, a controlling party of the bonds under the indenture when a default has occurred, to call a meeting in Chicago for Oct. 7. Holders of the Series A and Series B bonds also have the option of calling in. All must sign a confidentiality agreement.
ACA and the Lombard Public Facilities Corp. agreed to the terms of the proposed restructuring, said a Sept. 18 notice posted on the Municipal Securities Rulemaking Board’s EMMA website. “ACA would like to present this proposed restructuring to the holders of the first tier and second tier bonds,” it says.
In addition, ACA and the trustee’s financial advisor, FTI Consulting, will also make a presentation about the property, the status of operations, projected future operations, and how the restructuring would be implemented, according to the notice.
Details remain confidential and Lombard officials declined any further comment.
The notice reports that ACA has been in discussions with the LPFC, village, DuPage County and other parties in recent months in an attempt to agree on restructuring terms. Village finance director Tim Sexton has previously said the village hoped to announce a proposal that would better align future debt service with projected hotel revenues.
The restructuring would ease a burden that has weighed heavily on the otherwise affluent village.
Standard & Poor’s stripped the village of its investment grade rating in 2014; it had already struggled to obtain market access.
Lombard’s most recent refusal to make up shortfalls came ahead of a July debt service payment on the overall $190 million issue of hotel and conference center bonds. The village was asked and refused to cover a $2.6 million gap.
The trustees have long taken the position that he village is not legally obligated to burden its taxpayers. Nuveen Investments is the majority holder.
The Lombard Public Facilities Corp. drained reserves to cover the Jan. 1 payment on the A series that represents $118 million of the deal and carries an indirect appropriation pledge.
The A series is broken into two tranches, with an A-1 series for $64 million and an A-2 series for $54 million. ACA covers the latter and has made up debt service shortfalls.
The July 1 default marked the fourth default on the $43 million B series that carries the village's appropriation pledge. No payments have been made on $29 million of C series bonds.
The January 2014 default marked the first actual payment default and it gave bondholders of the A and B bonds the right to accelerate repayment but they have not done so, which do not carry any promise of village support.
Under terms of a tax rebate agreement, the village pledged — subject to appropriation — to cover debt-service shortfalls on the Series A bonds before reserves are tapped. The backstop was first triggered in 2012. The B series carried a more direct appropriation pledge but reserves were tapped first before the village was asked to cover shortfalls.
Standard & Poor's downgraded Lombard's issuer credit rating six notches to a speculative-grade B from BBB in February 2014. The portion of hotel bonds rated by Standard & Poor's are at the D level. The village in 2013 pulled a $10 million new-money issue of certificates when investors took a pass on the non-GO debt secured by any legally available and appropriated funds.
Use of the GO pledge is limited by property tax caps for the non-home rule village. The village opted to invest in municipal bonds to secure a $10 million commercial bank loan as an alternative method of raising funds for infrastructure work.
The public facilities corporation issued $190 million of bonds in 2005 to finance the project, which includes an 18-story, 500-room hotel operated by Westin Hotels & Resorts, a 55,500-square-foot convention center and two restaurants. If the project were to declare bankruptcy, the Series A and B bondholders have a mortgage claim.
The village in 2011 proposed a tender of the Series A and C bonds that asked holders to take a loss. The tender failed.
The village of about 43,000 is 20 miles west of Chicago.
The facility's hotel and restaurants posted a $2.7 million profit for the first half of 2015, which fell about $384,000 short of the budgeted profit, according to the project’s latest fiscal results.
“Hotel management believes it will recapture some of the year to date budget variance in the second half of the year,” the notice says. It has $4.9 million in various reserves and accounts with just a $21 balance in one of its multiple debt service reserves.
Bonds in the A series traded earlier this year at 46 cents on the dollar and securities in the B series traded late last month at 42 cents on the dollar.