Bankruptcy Ruling may Affect CDDs

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US Federal Court Bankruptcy judge K. Rodney May confirmed the reorganization plans of property developer Fiddler’s Creek LLC, which includes Fiddler’s Creek Community Development Districts 1 and 2 as creditors. But owners of Florida community development district bonds (CDDs) have been left in a lurch.

The judge agreed with Fiddler’s Creek’s argument that bondholders should not be regarded as creditors and therefore do not have legal standing in the case. This judgment might be taken as a precedent in other cases involving developers who frequently rely on tax-exempt bonds (a.k.a. dirt bonds) to fund infrastructure development costs. It has also given Fiddler’s the chance to restructure their municipality debt.

This landmark case has become Florida’s first bankruptcy case in which the bondholders are not classified as creditors even though the bonds were sold with security linked to the assessment of the land being developed. Currently, $5.1 billion, or 70%, of CDD bonds outstanding from Florida are in default.

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