Time of essence in proposed bond refinance of Arizona sports park

Bonds

Plans for a youth sports destination in Arizona to refinance its way out of financial trouble have yet to come to fruition, and the clock appears to be ticking.

Bell Bank Park, which opened on schedule in January 2022 and publicly claims to be a smash success, with 4.3 million guests in its first year, left a trail of mechanic’s liens from unpaid construction contractors and was declared to be in default by the trustee on the tax-exempt bonds used to build it.

The developers of the venue, designed as a destination for youth sports events, like soccer, volleyball and basketball travel team tournaments (it also offers competitive pickleball for an older demographic), created a nonprofit organization to qualify to issue tax-exempt bonds to finance it.

A rendering of the 320-acre Bell Bank Park in Mesa, Arizona. The trustee of bonds issued to build the park declared events of default in the first year of operations.

Icon Architectural Group

That 501(c)3, Legacy Cares, issued $284 million of bonds in 2020 and 2021 through the Arizona Industrial Development Authority to build the 320-acre venue in Mesa, Arizona.

In October, trustee USB Bank, N.A. declared events of default after Legacy Cares failed to make three full monthly payments toward the revenue fund that supports debt service on the bonds.

A series of disclosure filings to the Municipal Securities Rulemaking Board’s EMMA website followed in November — and they suggest a limited time window to solve Bell Bank Park’s problems through a new debt issue, which the borrower has said it wants to do.

According to a Nov. 4 notice from the bond trustee, available remedies for the default include acceleration — in which the holders declare all the outstanding principal and accrued interest to be immediately due;  receivership — in which the trustee appoints a receiver over the venue and its revenues; foreclosure; and a lawsuit for judgment on the bonds.

In the Nov. 4 notice, and a subsequent notice Nov. 16, the trustee announced it had conferred with a group of bondholders controlling a majority of the principal, and those “directing holders” directed the trustee to negotiate a forbearance agreement with the borrower that, among other provisions, would require the borrower submit a detailed remediation plan that is “expected to include modifications to the issuer documents and the borrower documents relating to, among other matters, enhanced reporting by the borrower and the manager.”

No further disclosures have been issued about the forbearance, but on Nov. 30, the board of the Arizona Industrial Development Authority, conduit issuer for the original bonds, approved a second supplemental indenture of trust for those bonds after some questioning from board members.

In response to questions from AZIDA board member Gary Naquin, Tim Stratton, bond counsel on the original deal when he was with Rosenfeld Gust and for the new deal on behalf of his own firm, said Legacy Cares and attorneys “are in discussion with the bondholder group about restructuring activities and bondholders are actively participating in those discussion which are ongoing,” according to minutes of the meeting.

Those restructuring activities include a planned new bond issue, underwritten by Loop Capital, according to the minutes and disclosure filings by the trustee.

Legacy Cares President Doug Moss indicated to the AZIDA board that the forbearance agreement allowed access if needed to the $22.3 million debt service reserve fund, according to the minutes.

Stratton, according to the minutes, “stated he concurred with Mr. Moss’ interpretation that the project hit a perfect storm — COVID, recession, fears, supply change issues and timing that all cast a bad shadow on the deal, saying that to the best of his knowledge, that is the extent of the issues.”

Stratton, according to the minutes, told the AZIDA board the borrower’s team has had conversations with Bryant Barber of the firm Lewis Roca Rothgerber Christie, who was hired by trustee UMB Bank, N.A., and that “bondholders are actively participating in those discussions.”

Barber, representing the trustee and holders of 70% to 80% of the debt, confirmed for the board that the bondholders are directing these changes and that the supplemental indenture is what they want, the minutes said. 

“In negotiations between bondholders and the borrower and its manager, it was noted the bondholders are not looking for recission at this time and want these bonds and want them to remain tax exempt,” Barber said, according to the minutes. “The bondholders love the facility, have visited the facility and are very concerned with community impact, and they need be able to write checks to continue propping up this project.”

Further complicating restructuring plans are the mechanic’s liens filed by contractors who say they remain unpaid for construction.

According to a legal order attached to a Nov. 29 EMMA filing by the bond trustee, mechanic’s lien plaintiffs, who have sued in state court, agreed to stay proceedings to give Legacy Cares time to line up a new loan that would provide enough money to settle claims from the contractors and others.

“This new loan will refinance the current debt, which is in excess of $280 million,” the court filing says. “If the transaction proceeds between Legacy Cares and the investment bank, Loop Capital, a new loan of approximately $400 million or more will be under contract by as early as January 2023, and scheduled to close shortly thereafter.”

The mechanic’s lien litigation was stayed until Jan. 31, according to the disclosure filing, with a status conference set for Feb. 16.

“As part of these discussions, the investment bank has indicated that a potential future refinancing could be executed on a tax-exempt basis through the issuer,” the trustee’s Nov. 29 disclosure, its most recent, says. “The investment bank has indicated they are working on a term sheet for the proposed refunding that will be provided to the borrower. The investment bank is working through bond counsel to develop a tentative financing schedule.”

Legacy Cares was not on the agenda at AZIDA’s most recent meeting Dec. 15. It has not posted an agenda for its next meeting, scheduled for Thursday.

A new deal, with a much higher principal, would face a daunting market challenge — the original unrated 2020 bonds priced at yields from 6.25% to 7.836% at a time when rates were much lower than today.

There are other curious indicators at the venue.

In a press release published Wednesday, Bell Bank Park declared year one to be a big success, in which it hosted more than 250 sports competitions that include high-profile national events, like professional pickleball, professional cornhole, and USA Gymnastics championships.

“Of course, with any massive project we ran into some bumps along the way, but through perseverance and a shared vision to make this dream a reality, we are excited to have this first year under our belt and shift our focus to an even better 2023,” Legacy Sports USA CEO Chad Miller said.

But according to the interim financial report for the first three quarters of 2022, posted Nov. 29 on EMMA, event revenue for Legacy Sports USA, LLC actually declined as the year went on, from $7.6 million in the first quarter, $2.5 million below budget, to $2.8 million in the third quarter, almost $6.5 million below budget.

Legacy Cares was converted into an Arizona nonprofit from a limited liability company in January 2020, according to its offering documents, the same year that it sold $250.8 million of revenue bonds through the Arizona Industrial Development Authority. That was followed by another $33 million of debt in 2021.

Ziegler was the underwriter of the unrated 2020 and 2021 bonds. All but $7.3 million of the debt is tax-exempt.

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