December 27, 2011 6:15 PM
Brooke Edwards Staggs, City Editor
VICTORVILLE • The city has defaulted on two bonds after trying to use restricted funds for a $535,000 payment due Dec. 1, according to a notice from the Bank of New York Mellon.
As a result, if a majority of bondholders agree, the bank notice states they could demand full and immediate payment of the outstanding balance on $173 million in bonds taken out in 2007 and 2008 for improvements at Southern California Logistics Airport.
The bondholders could also sue for payment, or agree to allow Victorville to use the restricted funds — the more likely option, since the cash-strapped city clearly doesn’t have millions of dollars at its disposal.
Victorville owed a total of $10.6 million in interest and principal Dec. 1 for eight bonds its Southern California Logistics Airport Authority took out between 2005 and 2008. However, the city came up $7.5 million short, and officials said they were going to rely on funds deposited into a reserve account held by a trustee — the Bank of New York Mellon, in the case of the 2007 and 2008 bonds — to temporarily cover the shortfall.
But in a notice dated Dec. 16, the bank said SCLAA can’t use reserve funds to make principal payments, according to the agreement the city signed with bondholders when it issued the debt. As a result, the principal payment did not go through and Victorville defaulted on the bonds.
With SCLAA $101 million in the hole and tax revenues dwindling due to plummeting property values, the city in the past has relied on interfund borrowing to make the debt payments. However, this year redevelopment funds are frozen as the state works to dissolve those agencies.
The way Victorville spent its bond funds is also the focus of a lengthy investigation by the Securities and Exchange Commission.
The city first got a subpoena from the SEC in August 2010 demanding information about bond expenditures. City officials were slated for more interviews with the federal agency in November, and no report has been issued to date.
City Hall is closed until Jan. 2 and Mayor Ryan McEachron couldn’t be reached Tuesday for comment on the default.
Historically, SmartMoney.com reports fewer than one 1 percent of municipal bonds go into default — though many experts are predicting that percentage will balloon in 2012
Brooke Edwards Staggs may be reached at (760) 955-5358 or at bedwards@VVDailyPress.com.
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