Victorville, Calif., Airport Authority Heads for 7th Default
LOS ANGELES — A Victorville, Calif., airport authority facing U.S. Securities and Exchange Commission fraud charges said it expected to default for the seventh time on bonds it issued to redevelop the airport from military to civilian use.
The Southern California Logistics Airport Authority announced in a Dec. 1 filing on the Municipal Securities Rulemaking Board's EMMA website that it would miss $4.3 million of payments due Monday.
The missed payments include principal and interest payments of $2.5 million on 2006 taxable subordinate revenue bonds and $1.6 million on 2007 subordinate tax allocation revenue bonds. The authority also failed to pay the $80,000 principal payment on 2008A subordinate tax allocation revenue bonds. It made the $168,325 interest payment on that bond using the bond reserve funds.
The bonds are secured by tax increment revenues from the airport, the city of Victorville, and surrounding areas, which have been hard hit by the housing downturn. The authority has issued a total of $347 million in debt, of which roughly half was used to build housing, according to another EMMA filing.
The SEC filed a lawsuit last year against Victorville, city official Keith C. Metzler, the 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 the 2008 bond offering.
The authority anticipated receiving tax increment in March 2015 to cure the $2.5 million default on the 2006 taxable subordinate revenue bonds. The defaults on the other bonds won't "be cured until sufficient tax increment is received from Victor Valley Economic Development Authority," according to the filing. The authority only received $8.3 million on Aug. 22 from property tax increment to pay the $13.02 million owed.
This is the seventh time since December 2011 that the authority has defaulted. The authority is one of the state's 400-plus successor agencies to a redevelopment agency, the SCLAA, being wound down by the state under legislation enacted in December 2011.
The authority issued $173.2 million in bonds in 2007 and 2008 to convert George Air Force Base, shuttered in 1992 by the U.S. Department of Defense, to civilian use. The Victor Valley Economic Development Authority, an entity that also includes the cities of Apple Valley and Hesperia and San Bernardino County, was created to spearhead the redevelopment efforts.
The redevelopment area encompasses a 4,000-acre area that includes the airport and housing and industrial development surrounding the airport. Bonds were issued to rehab the airport and to build housing and develop industrial properties.
The state's Department of Finance made a final determination that the bond payments are an enforceable obligation under the dissolution process - meaning it can keep that amount of tax increment to make the bond payments, according to the filing. The hitch is that the city has to generate the amount of the debt service needed through property tax increment, and it has been coming up short.
Reasons cited for the defaults are that the state took $9.3 million in fiscal 2009-10 and $1.9 million the following year from the authority to help finance a supplemental educational revenue augmentation fund. In addition, the assessed value of property in the redevelopment project area has declined from $9.49 billion in fiscal 2008-09 to $6.7 billion in fiscal 2013-14, according to the filing.
Pre-trial discovery in the SEC case has been postponed until January 2015 to give the KND defendants time to find a new attorney after theirs withdrew when his law license was rescinded in another matter. The trial is slated for late 2015.