A high-priced, complex legal dispute affecting 2,600 St. Paul Port Authority bondholders ended quietly Thursday in a Ramsey County courtroom with just a handful of observers.
Judge Robert Awsumb announced his approval of a settlement, ending years of legal wrangling and appeals. The judge noted that as a St. Paul resident himself he considers the pact to be "fair, reasonable and adequate" for city taxpayers, the Port Authority and bondholders.
Awsumb said the settlement "eliminates substantial risk" of loss for all parties, including the potential "of tapping the taxpayers."
As part of the settlement, the Port Authority will release $22 million in escrow, half of which will be used to pay past and current interest to the bondholders up to Dec. 1.
Bondholders will receive 20 cents on the dollar in interest for their holdings, said attorney Keith Broady, who represented them. So the holder of $5,000 in bonds would receive $1,000.
The judge has yet to rule on payment of attorneys fees, but Broady, of the Lommen Abdo law firm in Minneapolis, is asking for $2.2 million, which would come from the escrow.
The next step is a Dutch auction in January at which bondholders who wish to unload their investments can do so at a discounted rate. Of the $22 million in escrow, $10 million would be used to buy back bonds at a discounted rate from bondholders who want to sell now rather than collect interest payments.
Of the initial bond sale, bondholders still hold $51 million in principal, but the auction will substantially reduce that amount.
After the Dutch auction, the remaining bondholders will continue to receive tax-exempt interest payments through Sept. 1, 2032. It won't be known what the payments are until after the auction.
Between 1974 and 1991, the Port Authority issued about $429 million in development bonds that paid for 139 projects, including warehouses and industrial parks designed to broaden the tax base. But more than 60 percent of the value of those projects evaporated in the real estate bust of the late 1980s.
In 1991, the Port Authority realized the so-called 876 Fund wouldn't be able to generate enough money to pay back investors. The last of the bonds was to mature in 2022.
The Port Authority retired $123.8 million in principal through three earlier buybacks in which bondholders received a percentage of what they originally were owed.
The authority sought to cash out the remaining principal at a discount in 2006, then Broady filed suit on behalf of some of the bondholders.
Rochelle Olson • 651-925-5035 Twitter: @rochelleolson