Port Authority, Bondholders in Dispute Over Fund
The St. Paul Port Authority and some upset bondholders met in court Monday to continue a dispute over an investment fund, referred to as the 876 Bonds.
About 40 bondholders who own more than 20 percent of the 876 Bonds filed a complaint in June in Ramsey County District Court alleging that the Port Authority has misused the funds, and that a contract entitles the bondholders to be paid back.
During Monday's hearing, Judge Robert Awsumb determined that a trial will begin in mid-October 2011, according to attorneys involved in the case.
Between 1974 and 1991 the Port Authority issued more than $400 million in bonds that paid for 139 industrial projects in and around St. Paul. The contract states that revenues from the projects should be placed in a fund to be used solely to pay principal and interest owed on the 876 Bonds, according to the complaint.
Since the early 1990s, the Port Authority has said that the revenues pledged to the 876 Fund will be insufficient to pay back bondholders, according to Tom Collins, spokesman for the Port Authority.
“This [complaint] was brought by a small group who are in essence looking for a government bailout for a risky investment,” Collins said in a Tuesday phone interview. He said that the port authority is looking for a “fair and equitable” way to pay all bondholders, of which there are about 2,700-not just the 40 involved in the case.
Collins said the bonds are backed only by project revenue, not by the city or taxpayers. He also said that the disgruntled bondholders purchased the majority of their bonds after the Port Authority had already declared that the fund was in financial distress.
The bondholders allege that, while the Port Authority has claimed that the 876 Fund is insolvent, the Port Authority has breached the contract by diverting some of the revenue to other funds, including a river maintenance fund.
The Port Authority has completed several “buy-backs” through which bondholders received some of the money they were originally owed. The remaining principal of the 876 Fund is about $51 million.
The bondholders, through attorney Keith Broady, have requested a receiver in the case. They have also requested an accounting of money received and paid by the Port Authority, and damages of at least $50,000.
The Port Authority was organized in 1932, and in 1957 the Minnesota legislature granted it the power to acquire land for industrial development. The Port Authority focuses on economic development through partnerships, including the private sector and government.