A ruling by the bankruptcy court has put holders of Florida’s so-called dirt bonds sold by two Fiddler’s Creek Community Development Districts at the end of the pecking order when payments are made to creditors. The ruling made in August states that most of the debt payments to the bond holders would be made only after payments to other creditors. As such, these tax-exempt bond holders are contesting the court ruling which excludes them from a bankruptcy settlement of Fiddler’s Creek LLC, the bankrupt builder of a 4,000-acre (1,600-hectare) community in Naples, on Florida’s west coast.
Dirt bonds are sold by community development districts set up by property developers to pay for the construction of roads, bridges and utility lines on land for housing projects. 371 districts in Florida issued $7 billion worth of bonds currently outstanding.
Generally, bond holders are paid out of the revenue collected from homeowner and landowner fees. But the housing industry slump has seen many abandoned, half-completed housing projects and house prices dive to by 42% from their peak in 2006. This has caused a bond default of at least 40%, or $2.9 billion, of the $7 billion outstanding, according to data compiled by Bloomberg using disclosures made over the past year. The publisher of Distressed Debt Securities newsletter, Richard Lehmann said, “This is the single biggest default event in the history of the municipal market.” Commenting on the court ruling, Lehmann said, “The bondholders were supposed to be the first people in line (to be paid), and now they’ve been basically made the last.”
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Bankruptcy Updates, Zoning, Planning & Land Use Updates
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