SAN FRANCISCO — U.S. Bank is clawing back debt-service payments it erroneously paid investors after a public arena in eastern Washington defaulted.
The bank, acting as trustee, mistakenly made the payments to holders of Greater Wenatchee Regional Events Center Public Facilities District bond anticipation notes that matured Dec. 1. The person who normally processes the payments was out because of a death in the family and the backup employee did not know about the default, the Washington treasurer’s office said. The bank did not respond to a request for comment.
The treasurer’s office said in an email to state legislators Friday that it was told investors across the country had been paid, including Central Washington University and Douglas and Franklin counties in Washington. It said the bank was working to take back the funds.
The facilities district, which was formed to build and operate the Toyota Town Center arena in Wenatchee, defaulted on $42 million of notes after failed rescue attempts by the city and the state. It has no way on its own to cover the debt.
A bill that would have enabled Treasurer James McIntire’s office to loan the district money to covers its gap appeared dead last week in the Senate after passing the House during a special session. Officials feared contagion from the default would spread to other issuers, while opponents to the plan feared setting a bad precedent with what some termed a bailout.
Assistant treasurer Wolfgang Opitz said since no muni issuers went to market since the default, they have been unable to gauge any fallout. He said the problem is now in the hands of the district and the city.
State officials had been trying to avoid memories of the Washington Public Power Supply System’s $2.25 billion default on tax-exempt debt in the 1980s. The WPPSS — often called Whoops — debacle haunted the state’s ratings for years.
Wenatchee had explored issuing long-term bonds to help the district pay off the notes, but a Superior Court judge ruled in September that the bonds would put the city over its debt limit. Now that the default has occurred, Wenatchee officials have said they expect claims to expand beyond just the district. The city had a contingency loan agreement with the district to help cover debt service on the notes.
Standard & Poor’s downgraded the short-term rating on debt to D from SP-3 after giving it an SP-1 rating earlier in the year. It also downgraded the long-term and underlying rating on the city of Wenatchee to BBB from A-minus.
The district, created in 2006 to develop the arena, includes two counties and eight other municipalities, but Wenatchee, with a population of 30,000, is its largest city.
Officials said the firm hired to help build the center, Global Entertainment Corp., made unrealistic revenue projections. The district fired GEC, took over operations and hired a general manager. Then revenues improved enough to at least cover operations.