The Toledo-Lucas Port Authority entered into a closing agreement with the Internal Revenue Service to preserve the tax-exempt status for $3.5 million of 2005 bonds after the IRS found they were taxable.
Neither the authority nor the IRS disclosed the terms of the settlement. All of the development revenue bonds, which were scheduled to mature in 2025, were redeemed.
“Although the authority believed that all requirements relating to the excludability of interest paid to holders of the bonds were satisfied, its representatives discussed with [IRS tax-exempt bond office] personnel a possible resolution of the case,” Toledo-Lucas said in a notice.
The notice was published Friday afternoon on the Municipal Securities Rulemaking Board’s EMMA system.
“The closing agreement confirms that interest on the bonds is excludable from gross income,” the statement said. The authority’s president and chief executive, Paul Toth, could not be immediately reached for comment.
The bonds were issued through the authority’s Northwest Ohio Bond Fund, which was established in 1988 to promote economic development in the region, according to rating agencies. The 2005 bonds were issued for Truckland Ohio Holding Inc., which used the proceeds to build a 52,500 square-foot manufacturing facility. The facility was supposed to house sleeper truck manufacturing for Alumi-Bunk of Ohio Inc.
The IRS opened its investigation to determine if the facility was in fact used for truck manufacturing as intended, according to sources familiar with the transaction. Alumi-Bunk Corp. is based in Ontario. Its Toledo-based subsidiary is no longer in business.
Beginning in 2009, Truckland failed to make the loan payments required to pay debt service, according to bond documents released by the Port Authority in April associated with another deal. The agency said it used reserve funds to pay debt service on the Truckland bonds through November 2010.
As of April 28, the Northwest Ohio Bond Fund Program had $79.9 million of principal outstanding, including the Truckland bonds, which have subsequently been redeemed. The fund had $37.3 million in total reserves in April.
In November, the IRS issued a proposed adverse determination that the interest earnings from the bonds were not tax-exempt.
Fitch Ratings initially rated the deal BBB-plus, but last August dropped its rating on the authority. In March 2009, Fitch downgraded the Toledo-Lucas Northwest Ohio Bond Fund to BBB-minus with a negative outlook.
Robert W. Baird & Co. was underwriter and Bricker & Eckler LLP was bond counsel. Calfee, Halter & Griswold LLP represented the underwriter. The authority was represented before the IRS by Bradley Waterman, who declined to comment on the closing agreement.