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Platte County's reluctance to pay debt costs linked to a shopping center has captured attention within the municipal bond market.
A debt payment deadline for bonds tied to a struggling Missouri shopping plaza passed over the weekend, with a county government declining to fork over the money to cover a shortfall.
UMB Bank, the trustee overseeing the bonds, has argued that Platte County, located in the Kansas City area, should have to provide about $760,000 needed for a Dec. 1 payment.
In a notice to bondholders on Monday, the trustee said that, given the uncertain circumstances, it would opt to only pay interest on the debt, and would not make principal payments for the time being.
The bonds fall into a category of debt that requires regular appropriations, and lacks the same ironclad guarantees that underpin other forms of local government debt, like general obligation bonds.
Platte County commissioners have balked at spending money on the bond payments until there's a long-term "sustainable" plan in place for covering the cost of the debt service in future years.
A local industrial development authority in 2007 issued the bonds, totaling $32.2 million, to "refund" outstanding debt and to cover the cost of building parking facilities for the "Zona Rosa" shopping center.
S&P Global on Tuesday issued a notice saying they'd dropped their rating on the bonds to "D," indicating a default, from "CC," noting that it believes the county has the means to pay the debt service.
Zona Rosa's previous developer, which faced financial difficulties that included a default on its mortgage, had backfilled shortfalls in sales tax revenues that were initially expected to cover the debt. But a group led by TPG Sixth Street Partners took control of the property in September, and is declining to do the same, according to the county.
The county filed a lawsuit in early November, asking a Platte County Circuit Court to clarify that the county government has no legal obligation to pay the debt costs.
On Nov. 28, the trustee filed a petition asking the court to order that money the county had set aside for the payment be used for it. Judge James Van Amburg denied that request.
But he did order the county to reserve $763,390 until the litigation is resolved, or further court orders are issued.
UMB's notice to bondholders said that it would draw about $160,000 from a reserve fund to make an interest payment on Monday and that after that it would have about $3 million in the reserve account.
County officials estimate that the cost for the county over the life of the bonds, which mature in 2032, could be anywhere between $17 million and $40 million depending on how things play out.
Todd Graves, a lawyer for the county, did not immediately respond to a request for comment on Tuesday.
The situation in Platte County has caught the attention of the municipal bond market, with some observers saying it is an example of a problematic "willingness to pay" issue, where a local government has the money to pay debt service but chooses not to.
The county's credit rating has taken a hit as it has refused to budge on the Zona Rosa debt payments.
Moody's Investors Service in September downgraded the county's "general obligation limited tax" rating to Ba1, from Aa2. The downgrade signals to investors that Platte County is a riskier borrower and threatens to drive up the county's future borrowing costs.
The online docket for the Platte County court case shows that there's a hearing next scheduled for May 24.
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Bill Lucia is a Senior Reporter for Government Executive's Route Fifty and is based in Washington, D.C.