SAN FRANCISCO — An arena in eastern Washington is headed for a $42 million default Thursday after state lawmakers failed to pass a rescue bill in time during an emergency session.
The legislature could not muster enough votes to pass a bill that would have enabled the Greater Wenatchee Regional Events Center Public Facilities District to pay off $42 million in bond anticipation notes that mature Thursday.
Washington Treasurer James McIntire spurred the crafting of the bill, which would have borrowed against money the treasurer regularly collects from local governments to pay off the debt, in a bid to leep the contagion of a default from spreading to other state credits.
"We knew this would be a challenge going into the special session, but felt that the downside risks to the rest of the state more than warranted our attempted intervention," said Chris McGann, spokesman for the treasurer's office. "The matter is now squarely before the PFD and their advisors and creditors."
The legislation would have had to be pushed through and signed by the governor in only three days during the emergency session, which started on Monday and aims to tackle Washington's expected $2 billion deficit.
The bill ran into opposition from some legislators who thought a bailout of the public facilities district would set a bad precedent. Lawmakers could still could pass legislation to try to help the arena, but as it stands now the district doesn't have the money to meet the $42 million Ban maturity on Dec. 1.
"There is really nothing in the works to raise that money," said Steve Smith, the city attorney for Wenatchee, who said the city's hands are tied. Wenatchee is effectively responsible for debt service payments on the district's notes because of a contingency loan agreement that enabled the issuance.
Smith said lawyers representing bondholders have contacted Wenatchee about repayment. He said he was told that claims would likely be made against everyone else tied to the events center. Bondholders "can make claims on the PFD but the PFD doesn't have anything," Smith said. "I have been told there will probably be claims brought against everybody else."
The PFD, 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 hoped to issue long-term bonds to pay off the notes, but a Superior Court judge ruled in September that the bonds would put the city over its debt limit.
Standard & Poor's this fall downgraded the short-term rating on the PFD's three series of Bans to SP-3. All series had been rated SP-1 earlier this year. S&P also cut its underlying rating on the city to A-minus from A because of its fiscal link to the arena. Moody's Investors Service this month downgraded Wenatchee's general obligation bond rating three notches to A3 from Aa3 for the same reason.
The PFD issued the Bans to help fund construction of the 4,300-seat Town Toyota Center arena, a financial disaster since its opening in 2008. That year, it issued three series: $5 million of limited sales-tax Bans, and $5.5 million and $31 million of revenue and special tax Bans. Piper Jaffray & Co. was the lead manager.
The revenue and special tax Bans sold at a yield of 24% in a block of 50,000 as recently as Oct. 26, according to the Municipal Rulemaking Board's EMMA.
The notes have 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 had its own fiscal problems.
The firm hired to help build and manage the center, Global Entertainment Corp., made unrealistic revenue projections, officials said. After the first year, the center fired GEC, hired a general manager, and took over operations. Since then, revenues improved enough to cover operations.