CHICAGO — Village trustees in Lombard, Ill. stuck by their long-standing decision against honoring an appropriation commitment, leading to another debt service payment default on $190 million of bonds issued for a hotel and conference center.
Lombard, in the suburbs west of Chicago, lost its investment-grade ratings earlier this year for failing to honor its appropriation commitment on some of the project bonds after project revenues fell short.
The village board in late June rejected the request of the bond issuer — the Lombard Public Facilities Corp. — to cover shortfalls on the deal's Series A and B bonds. It has long rejected the request that comes ahead of Feb. 1 and July 1 payments.
"These are not legal obligations of the village of Lombard," trustee Peter Breen told the board at the meeting. Breen is a member of the ad-hoc committee formed by the village to come up with a plan to address the project's debt. "We have not changed our recommendation to this board that it not dedicate taxpayer funds toward paying shortfalls toward these bond payments."
The village attorney and committee are working hard "to bring this issue to a long term resolution that is in the best interest of the people of the village," Breen said.
Trustee Amalgamated Bank drew $2.25 million from reserves to fully cover the payment due on the Series A bonds while a portion of the payment due on Series B bonds was paid from available funds with $585,000 going unpaid, according to a
Under terms of a tax rebate agreement, the village pledged — subject to appropriation — to cover debt-service shortfalls on the $118 million Series A bonds before a formal reserve is tapped. The backstop was triggered in 2012. The $43 million B series carry a more direct appropriation pledge but reserves are tapped first before the village is asked to cover shortfalls. The $29 million C series does not carry any village support.
Standard & Poor's downgraded Lombard's issuer credit rating six notches to speculative-grade B from BBB earlier this year. It also dropped the village's debt certificates — which are payable from any legally available revenues and are notched one level below the issuer credit rating — to B-minus from BBB-minus, the lowest investment grade level rating.
Standard & Poor's offered a stinging assessment of Lombard's unwillingness to meet its obligations, though its financial management otherwise is considered strong.
"We are likely to continue to assess the city's overall management as very weak until, in our opinion, the city no longer exhibits an unwillingness to support appropriation debt in a full and timely manner," it wrote. The outlook is stable on the affluent suburb of 43,000, which once carried a double-A category rating.
The public facilities corporation issued $190 million of bonds in 2005 to finance a 500-room hotel and convention center operated by Westin. The January default marked the first actual payment default.
A proposed tender of the Series A and C bonds at a loss failed in 2011. Nuveen Investments is the majority holder.
"The village continues to work with the bond insurer and other parties to try to reach a long-term solution," Sexton said. A portion of the Series A bonds carry insurance from ACA Financial Guaranty Corp.
The village's decisions have already taken a toll on its market access. Officials last year pulled a $10 million new-money issue of certificates when investors took a pass on the debt. The village opted to invest in municipal bonds to secure a $10 million bank loan as an alternative.
The Series A bonds have most recently traded in the 50 to 65 cents on the dollar range while the B bonds have traded in the 30 cents on the dollar range.
