CHICAGO — Lakeside 370 Levee District in St. Charles County, Missouri, has filed Chapter 9 bankruptcy as it seeks to restructure $34 million of unrated bonds in hopes of improving the project's prospects.
The district issued the unrated bonds in 2008 to fund the acquisition from the city of St. Peters of the four mile levee and its related facilities required for the access, maintenance and improvements to the levee, and the land for drainage channels and detention areas.
The levee provides protection to a business park susceptible to flooding from the Mississippi River. A 1993 flood left the area under 15 feet of water.
Special levy assessments on businesses protected by the levee go to repay bondholders. The district has struggled to keep up with bond payments since 2012, when it drained reserves to partially cover payments. The bonds have been in default since.
One developer pulled out of the business park development in 2012 and the district foreclosed on a delinquent business that year that drove up assessments for other businesses, according to officials and various bond and court documents.
The district's board of supervisors approved the Chapter 9 filing on July 17 and it was filed Aug. 1. "It is in the best interest of the district, its creditors, the landowners of property in the district, and all other interested parties that the district file a petition seeking a readjustment of its debts under the provisions of Chapter 9," reads a district resolution.
The district has the support of key bondholders and an agreement in principle on a restructuring that the court will be asked to consider, according to Steven Goldstein, the district's attorney. The bankruptcy filing provided "the only realistic option" for the park to remain viable, he said. Goldstein declined to provide details of the agreement.
The bankruptcy was filed in the U.S. Bankruptcy Court for the Eastern District of Missouri and is being heard by Judge Kathy A. Surratt-States. Goldstein said he expects the district could wrap up the restructuring within six months.
The bonds are special limited obligations of the district payable solely from special taxes assessed against properties in the district. The bulk of the debt was sold in a 2028 term bond for $27 million that paid an interest rate of 7%. Stifel Nicolaus served as underwriter and Gilmore & Bell PC as bond counsel.
In bold-faced print on the offering statement's front page the district and its finance team warned: "The bonds involve a high degree of risk, and prospective purchasers should read the official statement in its entirety."
Those risks were outlined later in the statement, including the limited source of revenue to repay the bonds, local project opposition that resulted in a legal challenge, ownership concentration, potential tax delinquencies, potential delayed foreclosing proceedings, a limited secondary market for bond trading, and the potential for bankruptcy.
Major creditors include various municipal funds. Bank of New York Mellon holds a claim for $7.4 million, Waddell & Reed Investment Management a claim for $5.7 million, Nuveen Asset Management $18.5 million, and Ivy Management Inc. $1.7 million, according to the bankruptcy filing. Nuveen in a filing said it holds 61% of the district's bonds, making it the largest creditor.
The district's filing reports creditors of between 100 and 199, assets of between $10 million and $50 million and liabilities between $10 million and $50 million.
A court hearing is set for Aug. 11.
