BRADENTON, Fla. - The trustee for $64 million of bonds that Port St. Lucie, Fla., issued to finance the defunct Vaccine & Gene Therapy Institute questions whether the city will continue to honor its covenant to cure the debt service reserve deficiency.
Port St. Lucie filed a lawsuit last May against VGTI for breaching its loan agreement after the institute defaulted on its $2.6 million mortgage payment, which was structured to cover principal and interest payments on the bonds.
"We are disappointed that there is even the suggestion that the city will not fund its debt service obligations," interim city attorney Azlina Goldstein Siegel said late Friday. "We are reimbursing the reserve fund in the amount agreed upon by the city and the trustee as well as paying all debt service requirements going forward."
VGTI ceased operations on Oct. 1, blaming its closure on budget cuts by the National Institutes of Health and the "large debt burden" associated with building its 100,000 square foot, state-of-the-art research facility.
TD Bank NA, the trustee, told bondholders
The city obtained from VGTI a draft appraisal that indicates the value of the bond-financed property to be less than half of the aggregate principal amount of bonds outstanding, according to a material event notice on the Municipal Securities Rulemaking Board's EMMA filing system.
"It appears to the trustee that the city ultimately plans to sell or lease the bond-financed building," said the notice signed by TD Bank vice president David C. Leondi.
Leondi also said the reasonableness of the appraisal could not be verified, and that the trustee expects to oppose a sale or lease to any entity that is not a governmental body or nonprofit organization "because it believes doing so could adversely affect the exemption from federal income taxation of interest on the bonds."
The trustee also questioned whether VGTI could maintain its nonprofit status for the term of the bonds, if necessary. The bonds were issued in 2010. The final maturity of the back-loaded debt is in 2035.
The material event notice also said that VGTI and the city have been unwilling to pay the trustee's default administration expenses, including attorneys' fees. The trustee received a $144,000 payment toward more than $350,000 in expenses.
The city paid TD Bank an additional $213,549 on Feb. 24, but later said the payment had been initiated by mistake, the trustee said, adding there have been difficulties meeting with county officials.
"Our new legal counsel team is moving forward with scheduling a meeting with the trustee to resolve outstanding issues and discuss plans for handling the payment of debt service on the VGTI bonds," Siegel said.
In addition to the city honoring its covenant to budget and appropriate, Siegel said the city raised its millage rate by one mill for fiscal 2016 in part to honor its debt service obligations for VGTI debt.
On Feb. 5, St. Lucie County Circuit Judge Janet Croom appointed Michael Imber of Alvarez & Marsal as receiver over the VGTI property, according to a city press release.
The release also said that the city, during the course of the lawsuit, found that a receiver was warranted "due to the company's insolvency, cessation of operations, substantial defaults under a $64 million loan, inadequacy of the collateral to cover the debt, mismanagement, and waste, among other factors."
VGTI's default potentially leaves the city responsible for remaining payments on the bonds. The city has committed to make payments so that the debt service reserve requirement will be fully funded by June 15, according to the trustee's notice.
On Thursday, a customer bought $25,000 of VGTI-related bonds at par to yield 4.93% in 2042, according to trading data on EMMA.
In June, Moody's Investors Service Port St. Lucie's general obligation bond rating to A1 from Aa3 citing impacts on the general fund from economic development project guarantees and debt-related pressures. It also downgraded to A2 from A1 t$136.3 million of certificates of participation and non-ad valorem backed conduit, lease and special assessment debt. It assigned a negative outlook to all the securities.
Port St. Lucie, about 50 miles north of West Palm Beach, also supported the defunct Digital Domain special effects studio that filed for bankruptcy in 2012.
