BRADENTON, Fla. - Crowds were larger than expected at the reopening of Alabama's Visionland over the Memorial Day weekend. But while visitors to the state's first theme park were enjoying Splash Beach and other attractions, investors who lost money buying the bonds that financed the original Visionland were preparing to go to court.
The theme park, located about 16 miles southwest of Birmingham, declared bankruptcy last year after defaulting on $90 million of unrated tax-exempt bonds. It reopened under private ownership, and bondholders remain in court trying to enforce the park's bankruptcy court-ordered settlement.
A federal judge in the United States District Court for the Northern District of Alabama's Southern Division is expected to rule soon on a lawsuit filed last December by Suntrust Banks Inc., as trustee for the bondholders, charging Birmingham with breach of contract.
The lawsuit says the city failed to make a $1 million payment owed under the funding agreement that supported the $90 million of bonds issued in 1999.
The funding agreement pledged the "full faith and credit" of eleven Alabama communities -- Birmingham, Bessemer, Fairfield, Hueytown, Adamsville, Brighton, Lipscomb, Sylvan Springs, Maytown, Vance, and North Johns -- to collectively pay $2.95 million a year to secure Visionland's outstanding debt.
The agreement required the cities to make the payments "as long as the bonds are outstanding, unless an authorizing municipality shall have given the authority five years' notice prior to Oct. 1 that it will not renew such obligation beyond the currently obligated period."
Some of the cities gave notice last year that they would not make payments beyond the next five years. The Birmingham City Council on Sept. 24 voted as required in the funding agreement to end its financial support of Visionland in five years, but did not make its payment on Oct. 15, 2002.
"We think the city is obligated to pay at least $1 million a year for five more years," said Jeffrey Kelley, an attorney with Powell, Goldstein, Frazer & Murphy, which is representing Suntrust. "We are surprised that a city such as Birmingham would not honor its obligations to these bondholders."
City attorneys could not be reached for comment.
Court documents filed by the city contend that Birmingham's funding agreement was different than those signed by the 10 other cities and that the Mayor-Council Act governing operations of the city states "No contract involving the payment of money out of the appropriation of more than one year shall be made for a period of more than five years, nor shall any such contract be valid unless made or approved by resolution or ordinance."
Kelley said that the agreement is a contract, but it does not obligate payments for more than five years because of the provision allowing the city to opt out. He also contended that the Mayor-Council Act does not apply.
Both the city and Suntrust have filed their arguments in briefs that are under review by the judge. Both have asked the judge for a summary judgement.
When it opened on May 23, 1998, Visionland was the first major theme park in Alabama.
The 11 cities named above joined together to build a regional theme park with water slides, roller coasters, and related rides in Bessemer. The West Jefferson Amusement and Public Park Authority was created to oversee the park and issue debt for it.
In 1999, the authority sold $90 million of unrated, tax-exempt first mortgage revenue bonds. That debt was used to refund bonds sold in 1996 and 1998 for the project. Proceeds also were to be used to add new amusement rides to the park toward the goal of operating it year-round.
Last June, the park filed for Chapter 9 bankruptcy protection in Birmingham, owing bondholders $90 million and other creditors $10 million.
On Dec. 20, U.S. Bankruptcy Judge Benjamin Cohen approved the sale of the theme park for $5.25 million to Southland Entertainment, a California company. The majority of bondholders approved the sale.
Bondholders have already received the $5.25 million from the sale of the park, Kelley said Wednesday, adding that Birmingham is the only city against which bondholders have instigated litigation for payment under the agreement.
One investor told The Bond Buyer that Birmingham's refusal to make its payment under terms of the agreement is tantamount to defaulting on a general obligation pledge and that it should have an impact on the city's credit rating.
Moody's Investors Service assigns an underlying Aa3 rating to Birmingham's GO bonds and warrants. Standard & Poor's assigns a AA rating to them.
Fitch Ratings assigns a AA-minus to the city's bonds and warrants and noted the city's dispute concerning the five-year obligation in a credit report last December.
Amy Laskey, an analyst with Fitch who covers Birmingham, said yesterday that she could not comment on the Visionland case.
"Generally speaking, we take seriously a government's commitment to stand behind a full faith and credit obligation," Laskey said. "If they don't, we would consider that in looking at the GO bond rating."
