CHICAGO - The Ramsey County, Minn. board of commissioners approved spending $10.55 million to purchase a sports complex financed with $27 million of now-defaulted bonds sold by Vadnais Heights.

The sale is expected to close by June 30, according to a bondholder notice.

A Ramsey County judge cleared the way for the sale to the county at the request of the trustee in an order April 29.

A group of the bondholders had attempted to block the sale in hopes of recouping more of their investment through the continued operation of the facility.

Attorneys for the trustee US Bank NA countered that the sale was in the best interest of bondholders.

US Bank began pursuing a sale of the facility last year in an effort to recoup funds for bondholders but a previous agreement fell through. Ramsey County was among the original three offers considered.

The county will finance its purchase with an internal loan from its capital projects fund. Most board members said they believe the deal was worth it given the newness of the facility.

Ahead of the sale, the county had been conducting due diligence assisted by financial advisory firm Ehlers to determine the financial risks and whether the facility could support itself financially and cover repayment of the loan.

The review found the facility should generate sufficient net revenue to cover the annual $500,000 loan payment over 20 years with additional revenues going to cover improvements and other potential costs.

The city of Vadnais Heights in 2010 sold the bonds through its economic development authority to finance construction of the complex. The city of 12,000 is located outside St. Paul.

The bonds were supported by a master lease agreement and repaid with those lease payments. As the complex struggled, the city subsidized debt service, but the council decided last year it could no longer afford the assistance and cancelled its lease and aid. The city argued it was simply exercising its legal rights under the lease agreement.

In 2011, the facility generated $300,000 toward $1.6 million of annual debt service on the bonds that mature in 2041. The city provided $500,000 to fully cover an August 2012 debt service payment. Under its master lease agreement, Vadnais Heights is able to decide annually whether to cancel the lease.

The project failed to generate sufficient revenues to cover the full principal payment owed on the bonds in February, 2013, or to cover interest due on $2 million of unrated subordinated series D bonds.

The trustee tapped reserves to make the full debt service payment due Feb. 1 on three parity series of bonds totaling $25 million. Previously, events of default had been triggered, but the Feb. 1 principal default marked the first payment default. The trustee also tapped reserves to cover interest on the three parity series of bonds due in August 2013.

The decision to renege on the lease and eventually default prompted Moody's Investors Service and Standard & Poor's to strip the city of its investment grade general obligation ratings.

The trustee has warned in prior notices that any potential sale was not expected to generate enough to repay all principal and interest owed on the bonds. Bondholders would receive the net proceeds after various fees and expenses and a broker's commission are paid.

The proceeds were used to acquire 10 acres of land and build the 100,000-square-foot domed multi-sport facility with a two-rink ice arena. The city served as the tenant, leasing the facility for a rental payment equal to the its annual operating budget, including debt service.

The bonds have traded most recently in the 30 cents to 40 cents on the dollar range

The trustee reported in its most recent notice that it would seek another court hearing regarding distribution of the sale proceeds, which will be deposited into a special trust account.

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