Under terms of a complex $27 million bond deal, the Toledo-Lucas County Port Authority could be left holding the bag for $600,000 a year in interest payments if cargo carrier BAX Global Inc. were to break its lease.
The port authority board of directors voted 12-1 yesterday to move ahead with the bond "resell" anyway, because interest rates in the market are favorable and the new deal would drastically lower payments in later years.
But the new deal - which is akin to refinancing a $27 million house over more years at a lower interest rate - required the port authority to back the deal in case BAX bails on its Toledo Express Airport lease before it is up in 2013. The bond holders demanded it.
The port authority owns the 279,000-square-foot facility, and BAX's $3 million-a-year rent is how the bonds are repaid.
The original bond sale resolution approved by the board in June did not include or anticipate the additional bond-holder requirement, and two board directors, R. Michael Frank and G. Opie Rollison, said they did not like the "surprise" and short notice given to decide the issue.
"We were in open-heart surgery, and we found something we didn't count on," explained Michael R. DiPerna, director of public finance for Baird & Co., which is in charge of the bond sale. "Yes, it's a risk, but we think it's a calculated risk."
He said the $600,000-a-year risk is better than continuing with the current deal, which requires the port authority to pay $3.4 million a year from 2014 to 2019 if BAX does not renew and if the authority can't find a new tenant.
Under the new deal, the port authority would owe only $800,000 a year from 2014 to 2019, making it easier to lease the space.
BAX is healthy and under the legal requirements of a lease, Mr. DiPerna pointed out.
The original BAX bond deal of 1989 - when the company moved here from Fort Wayne, Ind. - would not fly today, he said.
Back then, a single bond holder with faith in the then-troubled company came forward, he said. Bond buyers today need more assurances, he said. "The market has gotten much smarter."
Had the board voted to delay, the deal might have unraveled. That would put bond market egg on the port authority's face and perhaps make selling bonds in the future more difficult, said Jeffrey A. Bomberger, the attorney for the port authority on the bond deal.
As a result, Mr. Frank said he felt the port authority was voting under "duress," and suggested separate legal counsel advise the board about what to do next.
"They have an interest in seeing this deal go forward," Mr. Frank said of Mr. DiPerna and Mr. Bomberger, who were giving the bond presentation yesterday. "I haven't read the [new] contract, haven't seen the new contract."
Mr. Bomberger said that he was actually hired to be the port authority's independent counsel and said he did not have a stake in the deal. He advised supporting it.
Mr. Frank was the sole vote against moving forward until the deal could be studied more closely. Mr. Rollison said his "comfort level" improved after hearing Mr. DiPerna's explanation.