Toledo-Area Authority Bonds Hit Junk After Developer Fails to Make Payments

CHICAGO — Fitch Ratings stripped $9.3 million of special-assessment revenue bonds from the Toledo-Lucas County Port Authority of their investment-grade rating Wednesday.

The authority issued the bonds in 2007 to finance the Town Square at Levis Common, a mixed-use development in the town of Perrysburg outside Toledo. They are being downgraded amid the developer’s failure to make debt-service payments and the county treasurer’s refusal to pursue a tax-lien sale as stipulated in the bond agreements.

“Our concern is that the tax-lien agreement is presented in one way in the bond documents, but it doesn’t seem to have been carried out in that way,” Fitch analyst Kevin Dolan said Thursday.

Fitch is the only rating agency to rate the debt. Analysts downgraded the bonds to BB, two levels below investment grade, from A-minus. The outlook was also revised to negative.

Proceeds from the original $14.1 million debt issue were meant to finance three projects, including a Hilton hotel, entertainment, and retail space. The Hilton is up and running, but developer Larry Dillin has failed to make the required special-assessment payments on the entertainment/retail property since July 2009.

Of the original $14.1 million issue, only $9.3 million remains outstanding. The bond trustee drew on a letter of credit and unspent proceeds to cover $4.75 million of the debt. The move was allowed under bond agreements after Dillin failed to complete a portion of the project by March 2010.

Wood County Treasurer Jill Engle said that she has entered into a payment plan with Dillin allowing him to pay off one-tenth of his unpaid back taxes over the next five years. But the payments are not enough to meet debt-service payments on the debt.

Fitch said the rating is not lower than BB because the trustee has sufficient funds to cover the next two year’s principal and interest payments on the bonds, even if Dillin makes no further payments.

The downgrade is partly due to Wood County’s inability to implement a key part of the original bond agreement by conducting a tax-lien sale to pay off the debt, Fitch said.

“The fact that the retail/entertainment portion of the assessed property was not foreclosed upon and that a tax-lien sale cannot be conducted in accordance with the original bond documents, which Fitch considered a credit positive, is a major concern for Fitch and has been reflected in this rating downgrade,” Dolan wrote.

Engle said last week that the bond trustee has asked the county to conduct an accelerated foreclosure sale as stipulated under bond documents, but that the county is prohibited under state law from doing so.

Fitch originally rated the bonds A and downgraded them to BBB-plus last February. The rating was adjusted earlier this year to A-minus with a stable outlook following the agency’s municipal rating recalibrations, before being downgraded again Wednesday to BB with a negative outlook.

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