CHICAGO — The trustee for $39 million of appropriation-backed bonds sold by a Moberly, Missouri, to help finance an artificial sweetener factory has filed a federal lawsuit against the Chinese company that abandoned the half-built project and defaulted on its city payments to cover debt service.
UMB Bank NA’s lawsuit against Mamtek U.S Inc. and its parent Mamtek International alleges breach of contract and breach of other terms under the bond documents. It seeks damages of at least $36 million and asks the court to appoint a receiver.
“Mamtek may have wrongfully diverted funds that were paid to Mamtek with the understanding, knowledge and belief these funds would be paid to creditors. As a result, numerous liens have been filed by unpaid contractors and/or subcontractors,” reads the complaint filed Friday in the U.S. District Court for the Eastern District of Missouri. “The actions of Mamtek constitute numerous material breaches of obligations, covenants, and representations under the bond documents.”
Mamtek officials could not immediately be reached to respond.
The lawsuit is the latest in a fast-moving series of developments over the failed project. Moberly last week informed UMB that it won’t honor its pledge to make the annual appropriation to repay the debt now that Mamtek has abandoned the project. The city — which has taken the position that it is not legally obligated to appropriate its own funds to cover debt service — also handed over control of the project site to UMB.
The bonds are secured by the city’s financing agreement with the company, a security agreement and first deed of trust. The city pledged to annually appropriate payments to the trustee. Moberly lost its investment-grade rating in September after it declined to make good on its appropriation pledge supporting the revenue bonds.
The city’s refusal to appropriate led the trustee to dip into reserves for a Sept. 1 debt payment. The city’s decision followed the company’s default in August on a payment to the city needed for debt service. The project received city help from the bonds issued through the city’s Industrial Development Authority and $17.6 million in state assistance.
Proceeds were to cover the cost of acquisition, construction, and equipping of a sucralose manufacturing and processing plant owned by Mamtek. Officials believed the project would spur economic development in the struggling central Missouri community and create hundreds of jobs, but construction halted with the plant half-built.
Missouri Attorney General Chris Koster is jointly investigating the project with local prosecutors, at least two state legislative committees are examining the state’s role in the project, and the trustee has reported that the Securities and Exchange Commission has issued subpoenas in connection with the financing.
The trustee is now concerned that Mamtek may be attempting shield any wrongdoing from scrutiny by liquidating its assets. It has handed corporate governance, based in California, over to a liquidation company and assigned its assets to Development Specialists Inc.
The move could lead to the removal of all of Mamtek’s “electronic information in a non-judicial proceeding away from the scrutiny of the multimillions of dollars of creditors that Mamtek has left high and dry in Mid-Missouri,” the complaint reads. “Mismanagement and distrust now exist regarding Mamtek, and a receiver is needed to control and preserve any remaining assets for the benefit of UMB as the largest creditor under the bond documents.”
The IDA last year sold three series of Project Sugar bonds, including $8.4 million of taxable capital project bonds, $3 million of tax-exempt capital project bonds, and $27.5 million of tax-exempt recovery zone facility bonds. The latter was issued under a federal stimulus program that allowed qualified private projects to use tax-exempt financing. Morgan Keegan was the underwriter.
UMB issued a bondholder notice dated Nov. 4 and posted the lawsuit, which is available at http://emma.msrb.org/ER526191-ER406610-ER808368.pdf.