he Missouri Court of Appeals for the Western District of Missouri this week upheld a Platte County Circuit Court ruling against UMB and in favor of Platte County in the matter of the Zona Rosa bonds.
“The court was correct to reject the trustee’s attempts to impose a bondholder bailout on taxpayers by seeking to alter the terms of the agreement,” Todd Graves, special legal counsel for Platte County in the matter, said this week.
UMB had appealed the ruling issued by Judge James Van Amburg that the financing agreement between the county and UMB concerning the Zona Rosa bonds does not contain any promise by the county to pay shortfalls for the transportation refunding and improvement bonds.
UMB Bank, trustee of the bonds, claimed the trial court erred in its judgment because the county made a conditional promise to pay shortfalls for the Zona Rosa bonds in the financing agreement.
“We find that the plain language of the financing agreement does not contain a promise by the county to pay for the shortfalls for the Zona Rosa bonds. We affirm,” the appeals court said in rendering its decision, which was dated Tuesday, Aug. 25.
The Zona Rosa bonds were for parking garages at the shopping complex. A special taxing district was formed and the bonds are paid from revenues generated by a one percent sales tax.
In addition to the one percent sales tax, the developer was obligated to post a $500,000 letter of credit that could be drawn on by the trustee (UMB) as security for the bonds.
Shortfalls occurred in the bonds, and until 2017 the developer used its own private funds to cover the annual shortfall in revenue for payment on the bonds. In November of 2017 the trustee drew on the $500,000 letter of credit originally posted by the developer.
The trustee later made a written demand to the developer to replenish but the developer did not comply. In September of 2018 the developer sold its interest in Zona Rosa to Monarchs Sub, LLC. Trustee made demand on Monarchs to replace the letter but Monarchs did not comply. The trustee sent the county written notice of default, threatening to sue the county unless it issued a binding written commitment to pay the revenue shortfall.
The county filed a petition for declaratory relief against UMB seeking declaration of its legal obligations.
The trial court entered its judgment in favor of the county, finding that the county was not liable on the bonds as the county did not promise to make payments in the financing agreement.
The payments demanded by the trustee would have escalated over time, totaling up to $40 million through 2032, county officials have said.
The county’s action not to cover the payment did have a negative impact on the county’s bond rating, sending it plummeting into junk status.