CHICAGO — The St. Paul Port Authority is set to issue a tender invitation in April to holders of the remaining $51.7 million of defaulted industrial revenue bonds as agreed to under a class action settlement aimed at resolving five-year-old litigation over the troubled 876 Bond Fund.
A Ramsey County District Court judge signed the final court order approving the settlement, a trust agreement and an amended and restated 876 Fund basic resolution earlier this month and final appeals must be filed within 60 days, the authority reported in a notice posted at www.876fund.org/.
“It is currently anticipated that, unless an appeal of the court’s order is filed, the tender invitation to implement this part of the settlement agreement will be mailed to bondholders on or about April 20, 2012,” the notice says. “It is possible that the tender will be mailed earlier, if the appeal period is waived.” The agency anticipates it would take 60 days to complete the tender — conducted through a Dutch auction.
The settlement was reached after mediation sessions over the summer and District Court Judge Robert Awsumb gave preliminary approval to it in September. In addition to ending the litigation brought by a number of bondholders six years ago, the judge’s action also ends the SPPA’s long struggle to find an equitable means to compensate more than 2,650 investors.
Under the terms of the pact, the authority would make a one-time contribution of $1.5 million to the fund and release $22 million of pledged revenues set aside and held in escrow during the litigation. About $11 million of the revenue would go to bring all interest payments up to date through Dec. 1. The agency would use $10 million to hold the Dutch auction, during which bondholders could tender their bonds for a discounted principal amount.
The SPPA has held several past auctions for the fund, with the last one in 2003 paying about 70 cents on the dollar. Remaining investors would receive debt service payments through 2032, 10 years past the current 2022 final maturity on the bonds.
It is unclear how much bondholders who hold on to their securities will ultimately recover, as the size of future payments will depend both on how many tender their bonds at auction and on the financial performance of the remaining pledged assets and the revenues they generate.
Debt service is funded by lease payments and property sales of pledged assets, and other revenue from riverfront property leases, tonnage and fleeting fees. The dispute between the authority and investors who hold $20 million of the bonds began in 2006, as the agency thought it had devised an equitable solution in a plan to liquidate the fund and distribute proceeds.
The SPPA won district court approval in 2007, but the bondholders behind the litigation appealed. The appellate court upheld the lower court’s decision, but the Minnesota Supreme Court in 2010 voided the lower court rulings on a technical issue without ruling on the merits of the plan and sent it back to the lower courts.
The SPPA issued $428.8 million of revenue bonds between 1974 and 1991 under the Basic Resolution 876. The proceeds funded a total of 139 projects in and around St. Paul. Many of the projects failed and pledged project revenues have failed to cover debt service since 1991. The fund’s reserves were drained in 2004 and the bonds fell into default. Principal payments were halted in 2006 while partial interest payments have continued.