LOS ANGELES -- The embattled Southern California Logistics Airport Authority in Victorville, Calif. filed a disclosure notice on Sept. 17 notifying bondholders that it defaulted -- again -- on its bonds by missing a $1.2 million payment in June.
The city and airport authority officials are currently embroiled in a lawsuit with the U.S. Security and Exchange Commission over allegations of investor fraud.
Interest totaling $1.2 million was due on June 1 and the authority failed to deposit revenues to make the payment, and there are insufficient funds in the reserve fund to make up the shortfall, according to the filing.
The non-payment of the interest is an event of default under the indenture. The authority also failed to make a principal redemption due on Dec. 1, 2012, which put the bonds in default.
The bond trustee can declare the principal and interest accrued due immediately with a majority vote of bondholders, according to the filing.
The SEC filed a lawsuit on April 29 against Victorville, city official Keith C. Metzler, the Southern California Logistics Airport Authority, underwriter Kinsell, Newcomb & De Dios, and KND investment banker Janees Williams, charging them with defrauding investors by inflating valuations of property in connection with a 2008 bond offering.
The SEC alleged in its lawsuit that officials were responsible for misleading statements made in the airport authority’s bond offering. The authority was using tax-increment bonds secured solely by increases in property tax values, including for four new aircraft hangars, for a variety of projects.
According to the complaint filed in U.S. District Court for the Central District of California in Los Angeles, the SCLAA in April 2008 was forced to refinance part of the debt incurred to construct aircraft hangars and other projects by issuing additional bonds.
The principal amount of the new bond issue was partly based on a $65 million valuation for the airplane hangars, even though deal participants knew the county assessor valued the hangars at about $27 million, the SEC alleged.
In its complaint, the SEC alleges that the value of the property was inflated in order to meet the 1.25 times required for the bond indenture.
Defense attorneys representing Victorville and the Southern California Logistics Airport Authority argue that even if valuations for its airport hangars were allegedly inflated, they still met the market’s required benchmark in motions filed to dismiss the case.
Defense attorneys argued in court documents that even at the lesser value on the hangar the debt service ratio of 1.25% is met.
U.S. District Judge John Kronstadt postponed a hearing originally scheduled for Sept. 16 to hear arguments on defendants’ motion to dismiss until Oct. 28. Defense attorneys argued in requesting the postponement they need more time to review the 1.3 million documents filed by the SEC during discovery.