Metro industrial development bond defaults

[UPDATE WITH BOARD COMMENT Thu 4:07 pm Jul 20; first filed 1:55 pm]-Bondholders of $15.7 million series receive notice of default as company files Chapter 11 A $15.7 million series of

A $15.7 million series of industrial development bonds issued by the Metro Industrial Development Board for loans to the Osco Treatment Facility are in default, according to a notice sent to bondholders by the bond's trustee.

The notice was prompted by the recent Chapter 11 bankruptcy filing of Safety-Kleen Osco Holdings and of its parent Safety-Kleen Corp. (SK), which owns the West Nashville facility near the Cumberland River. The bond was underwritten by J.C. Bradford & Co. in 1993 and was sold mostly to individual investors in Tennessee.

A spokesman for Safety-Kleen said that he did not have any additional information about the bond default and recommended calling the bond's issuer, the Industrial Development Board of Metro.

Bobby Davis, attorney for the board, said that the city has no liability in the default and that the default has no bearing on the board's or Metro's credit rating.

An official with the trustee, The Bank of New York, would not comment. Mal Clissold, who has followed this bond for J.C. Bradford, referred questions about the bond to a spokesman in New York with PaineWebber Group, which bought the local investment firm last month. The PaineWebber spokesman, too, refused to comment.

The bond was issued to refinance $8 million of bonds sold in 1989 and 1991 to fund construction of the hazardous waste treatment center here. Additional proceeds were for improvements at the facility.

Unlike general obligation municipal bonds that are backed by municipalities, industrial development bonds are backed by a specific project or company. But like general obligation bonds, they confer tax-exempt interest income to their holders.

Tennessee investors who bought the Safety-Kleen Osco bonds received tax-free 6% interest payments. The bonds were issued in $5,000 increments and mature May 1, 2003.

Safety-Kleen announced June 9 that it was seeking Chapter 11 protection from more than $1.6 billion in claims. On Wednesday, a U.S. bankruptcy court in Delaware approved $100 million of debtor-in-possession (DIP) financing for the company.

According to the notice of default, The Bank of New York "has on hand the funds pledged as security under the indenture the sum of approximately $9.8 million." The bonds are secured by a deed of trust on the facility and "an assignment of the rights of the board against Osco."

The statement referred bondholders to Irene Siegel of The Bank of New York at (212) 815-5703.