DALLAS - Standard & Poor's downgraded bonds for a Glendale, Ariz., waste recycling plant to D after operators failed to make their Oct. 1 debt payment, analysts said.
Bonds used to build the plant were issued in 2013 by the Phoenix Industrial Development Authority. Designed to convert bulky trash to energy, the plant failed to operate successfully after its opening in 2014, resulting in litigation between developer Vieste and Glendale, said analyst James Breeding.
"Although as of Oct. 1, there were sufficient funds remaining in the debt service reserve fund to make the required payments on the 2013A bonds, there were insufficient funds to make the payment on the 2013B bonds," Breeding said. "It is our understanding that funds are being maintained to address litigation expenses."
S&P downgraded the bonds to a junk bond rating of BB-plus after the project drew on reserves to make an April 1 payment. The April 1 downgrade followed a five-notch downgrade in 2014 from an initial A-plus rating. The rating subsequently fell to CCC.
Bond proceeds were loaned to Vieste to build and equip the materials recovery facility in Glendale. Although the city was required to supply the trash for the facility, it bears no responsibility for the debt, officials said.
Bondholders authorized an additional $8 million in debt in January to retrofit the plant so that it could process the type of debris supplied by Glendale.
Glendale provides Vieste a land lease agreement that is $100,000 per year for a 30-year term, officials said. Vieste, in turn, agreed to pay Glendale an annual recycling management fee of $476,000. The plant was designed to produce up to 350 tons of gas from municipal solid waste every day, providing enough energy to generate 15 megawatts of electricity.
The contract with the city does not specify a buyer for the power produced by the waste. A fee for solid waste collections is charged on the monthly utility bill, though revenues from those funds are not officially pledged to these bonds, Breeding noted.
