GILROY
–– For the first time in its shaky three-year existence,
Bonfante Gardens is delinquent on a nearly $200,000 monthly payment
on $28 million of bond debt.
The cash shortage makes it possible for creditors to foreclose
on the Hecker Pass theme park, but a soon-to-be-announced buy-out
deal between the park’s senior and junior money lenders figures to
stave off a seizure of Bonfante Gardens’ assets.
GILROY –– For the first time in its shaky three-year existence, Bonfante Gardens is delinquent on a nearly $200,000 monthly payment on $28 million of bond debt.
The cash shortage makes it possible for creditors to foreclose on the Hecker Pass theme park, but a soon-to-be-announced buy-out deal between the park’s senior and junior money lenders figures to stave off a seizure of Bonfante Gardens’ assets.
“I don’t think the bondholders will foreclose on us,” said Bob Kraemer, Bonfante Gardens board of directors president. “If they wanted to do that, they could have done that months ago.
If it were not for the horticultural amusement park’s first profit-yielding season in 2003, bondholders would likely begin selling Bonfante Gardens’ property and opening its bank accounts to divvy up what little cash remains, park and city officials say. Because the park operated in the black last season, the creditors believe it is in their best financial interest to let the park live in default, at least for a while.
“The bondholders could shut the park down tomorrow, but they don’t want to,” City Treasurer Mike Dorn said. “They all seem to realize the park operating for a profit is worth more than all of its little pieces.”
Since the loan is in the form of a municipal bond, Dorn, as city treasurer, oversees administrative aspects of the contract between bondholders and the park.
Essentially, the bondholders will let the park keep the cash it has to reopen this spring, instead of making it pay off a fraction of its massive debt.
Senior bondholders Monday asked City Council to amend the park’s bond agreement which says the trustee of the bonds – U.S. Bank – must begin seizing cash and assets within five business days after it receives the default notice. U.S. Bank received the notice late last week, Dorn said.
Council unanimously approved a new clause allowing the trustee to seize assets only if a majority of bondholders request it.
Council is involved because the loans to the park come from tax-free municipal bonds issued by the city. Councilman Russ Valiquette did not vote on the matter because he is employed with the park.
Bonfante Gardens owes $28 million to Putnam Securities and Wells Investments, a subsidiary of Wells Fargo bank. These two lenders are considered senior bondholders since they have the right to seize cash and assets should the park fail to pay off its debt. Other lenders, called junior bondholders, are owed roughly $10 million, making the park’s total bond debt $38 million. However, they have no lien on park property, making it next to impossible to get their money back if senior bondholders foreclose.
Since it could be a long time, if ever, for money to get repaid, junior bondholders are considering a pennies-on-the-dollar repayment deal. The park will not release details until the deal is finalized, but essentially the senior bondholders would pay cash to the junior bondholders, with the caveat the junior lenders forgive the remaining Bonfante Gardens debt.
“Basically, all the bondholders agree the park needs to figure out a way to shed some of its debt,” Dorn said. “It’s the best chance for everyone involved to start getting some of their money back.”
If the junior bondholders do not agree to the pennies-on-the-dollar deal, senior bondholders could begin the foreclosure process and the park could file for bankruptcy. In the event this happens, a judge ultimately would decide who gets paid what and whether the park could remain in operation to help pay off debt.
Kraemer saw the latest twist of the park’s fate with optimistic eyes.
“The bottom line is we believe the bondholders are guardedly close to reaching an agreement.”
Kraemer said the delinquent payment was no surprise to any of the lenders. Since July, bondholders and the park have been trying to broker a repayment deal.
“I wouldn’t describe (the repayment deal) as pennies for dollars, but it surely means making some compromises on the current arrangement,” Kraemer said.
Kraemer would not say whether Michael Bonfante would agree to take the largest hit of the junior bondholders. Some believe because the park was his idea and under his leadership it failed to draw the crowds he anticipated, Bonfante should suffer a proportionate loss.
“We’ll see how Michael plans to respond in a very short period of time,” Kraemer said.
This latest news comes on the heels of a property tax feud with the Santa Clara County assessor’s office. Bonfante Gardens is trying to reduce its $1 million-per-year tax bill that has not been paid for two years. Bonfante Gardens officials say the park qualifies for more tax exemption – since it is a nonprofit educational facility – than the county is granting.
Park officials also want the county to reassess – and significantly lower – the value of the land. If park officials are successful, Bonfante Gardens’ property taxes would naturally become lower because property tax is based on assessed value.
Kraemer said the county’s lawyer handling the matter was on vacation. He expects more information from the county in roughly a month.
