SAN FRANCISCO — Wenatchee, Wash., and a local public facilities district hope to sell bonds to resolve a $42 million default on notes used to fund a public arena.
The City Council put in place the first step of the rescue plan after it voted earlier this month to impose a 0.2% sales tax increase in the city following legislation by Washington lawmakers that let them move ahead with the tax without a public vote.
Members of the Greater Wenatchee Regional Events Center Public Facilities District started the second phase when the cities and counties agreed last month to let voters in the region consider a 0.1% sales tax increase on an April 17 ballot. If approved, the tax would remain until the debt is repaid.
“The revenue generated for the sales taxes would pay off a long-term bond issuance,” said Steve Smith, an attorney for Wenatchee. “We are basically waiting for this public vote.”
A simple majority yes vote in the district will pass the measure. The facilities district includes two counties and eight other municipalities, but Wenatchee, with a population of 30,000, is its largest city.
Last month, the state Legislature gave Wenatchee the authority to raise its sales tax without voter approval. Gov. Christine Gregoire signed the bill at the start of this month.
The city and the district have outlined different scenarios for bond sales if voters agree to the proposed tax increase.
The city would issue sales tax and general obligation bonds and the district would sell sales tax bonds to raise $44 million combined to redeem the defaulted bond anticipation notes.
Estimates of the true interest costs for the debt would range from around 5% to 5.50% while terms would be from 15 years to 30 years.
The district, which was formed in 2006 to build and operate the Toyota Town Center arena in Wenatchee, defaulted on $42 million of bond anticipation notes on Dec. 1 after failed rescue attempts by the city and the state.
It issued the Bans to help fund the 4,300-seat arena, which has been a financial disaster since it opened in 2008. That year, it issued three series of notes — $5 million of limited sales tax Bans, and $5.5 million and $31 million of revenue and special-tax Bans.
The notes, originally rated SP-1, required $2.2 million of annual interest payments. The center had only been able to contribute part of the annual payments using sales tax revenues, leaving the rest of the cost to the city, which has been struggling with its own financial problems.
The city and the district are also dealing with an investigation by the Securities and Exchange Commission due to the default. The SEC asked the city to voluntarily produce several different types of information, including anything tied to the event center’s finances and Ban issuance.
Piper Jaffray & Co. was the underwriter for the 2008 issuance of the notes while K&L Gates LLP was the note counsel. The SEC asked to see any requests for proposals, contracts, or anything tied to advice from legal or financial advisors.
After the Wenatchee arena default, Standard & Poor’s downgraded the short-term rating on debt issued by the district to D from SP-3.
The rating agency also downgraded the city’s long-term and underlying rating to BBB from A-minus because of its legal obligations to the district’s debt.
City officials have said the firm hired to help build and operate the center, Global Entertainment Corp., made unrealistic revenue projections. The district ultimately fired GEC, took over operations, and hired a general manager. Then revenues improved enough to at least cover operations.
GEC has run into questions about its involvement with other small arenas around the county that failed to perform up to expectations.