VBT pays PFM to analyze the township’s Visteon bonds position

By Diane Madigan
Independent Special Writer
In June 2012, the Van Buren Township Local Development Financing Authority (LDFA) hired Public Financial Management, Inc. (The PFM Group) to advise the LDFA on what could be done about the Visteon bonds.
It was apparent that LDFA would not have the funds available in the future to pay off the bonds, as planned.
PFM’s work included analysis of cash flow including projected tax increment revenues, debt service requirements and analysis on options available.
They also provided graphs of a projected cash flow schedule of the LDFA and its ability to meet its debt obligations.
To date, the LDFA has spent $10,646 out of its budget for services with the PFM Group.
The 87-page report, which was obtained by the Independent through the Freedom of Information Act, is dated Sept. 6, 2013 and was sent with Clark Hill law firm’s Sept. 9, 2013 letter to Visteon demanding a meeting.
PFM concluded the taxable values within the LDFA are much lower than the original projections in 2003 and a cash shortfall is inevitable if new revenues are not introduced.
PFM provided 15 cash-flow scenarios. In all but two, the LDFA will have a cumulative cash flow deficit by 2018 with two exceptions showing the deficit occurring one year earlier, in 2017.
Another observation made by PFM in the various cash flow scenarios is that the projected shortfall ranges from $25.1 million to $36.4 million.
The reports state without a substantial increase in the captured taxes, or the influx of additional funds by 2017 or 2018, the LDFA will not have sufficient funds to meet the debt service obligation which the township and/or LDFA issued for the benefit of the Visteon development.
PFM added that a financial plan to deal with the imminent cash deficit needs to be developed now to negate the shortfall the LDFA will begin to face by 2017 or 2018.
Historical LDFA, Bond and Visteon Bankruptcy Data from the PFM Report
In July 2002 the Township Board adopted a resolution to create the Local Development Financing Authority (LDFA). The authority was established to encourage local development, prevent conditions of unemployment and promote economic development within the Township.
Shortly after, the authority used its power to help Visteon establish its new world headquarters (Visteon Village) within the district. This assistance included the development and construction of various public facilities.
Visteon Village proposed to include nine buildings for office and technology use as well as related parking and property improvement on a 7.5 acre property. The Developer, Visteon Village, also proposed another 49 acres of property to be developed and utilized for utilities, roads, storm water management, parking and open spaces, agreeing to spend a minimum of $270 million prior to the end of 2004.
Van Buren Township and the LDFA agreed to pay Visteon $21,985,475 toward the cost of the public facilities to be paid from bond proceeds. LDFA prepared a development plan and Tax Increment Financing plan to capture the incremental tax revenues from the development and to repay the bond debt service.
The LDFA issued tax increment bonds, for $21,610,000 on Aug. 6, 2003 and capital appreciation bonds totaling $6,589,656 for a total of $28,199,656.
In order to make the bond issuance marketable to potential investors, VBT pledged its limited tax full faith and credit as additional security for the bonds. From 2013 to 2032 when the bonds are paid off the total cost to the township in principle and interest is $48.568 million.
Visteon Corp. files for
Chapter 11 Bankruptcy
On May 28, 2009 Visteon filed for Chapter 11 bankruptcy.
At the time Visteon filed for bankruptcy the township assessed the value of Visteon Village at approximately $165 million. But, Visteon believed it was worth substantially less.
So, in September 2009 Visteon began negotiations with the township to obtain a reduction of assessed value of Visteon Village and advised the township that they would likely start litigation against the township if the parties were unable to reach an agreement on a reduced taxable value for Visteon Village.
The township had given Visteon an Industrial Facility Tax Abatement in exchange for locating its operation in the township. As a result of economic conditions, Visteon was not able to meet certain obligations under the tax abatement agreement in connection with staffing levels at Visteon Village, entitling the township to revoke the tax abatements.
Settlement Agreement with
Visteon Corporation
On Jan. 25, 2010 in response to Visteon’s Chapter 11 bankruptcy filing, the township entered into a settlement agreement which stated:
• Effective Dec. 31, 2009 the township set a fair value of Visteon Village at $60 million for real estate property tax purposes. (Taxable assessed value of $30 million).
• Visteon was to pay the township $2.2 million in cash.
• The township was to file a general unsecured claim in court, in the amount of $9.8 million which Visteon could not object to in the connection with the tax abatement agreements.
• The township agreed that Visteon’s inability to meet its commitments in the tax abatement agreements would not be a basis to void or cancel the Tax Abatement Agreements.
• To the extent that property tax payments made by Visteon to the township (including the $2.2 million payment described above) were inadequate to permit the township to meet its payment obligation on the Township Bonds, Visteon agreed to negotiate with the township in good faith to determine the amount of the shortfall with respect to those bonds and make a payment, in-lieu of tax to the township to assist the township in making timely payments on the township bonds.
Sale of Visteon Village
In September 2011, Visteon Corporation made public the fact that it intended to sell Visteon Village. Sovereign Partners LLC, doing business as Grace Lake LLC, was identified as the potential buyer in March of 2012. The sale of Visteon Village to Sovereign Partners LLC closed on or about April 17, 2012.