- 20 -
were diminished by numerous fee payments, because the GIC's paid
interest at higher rates than the Bonds, the remaining proceeds
were sufficient to guarantee payment of both principal and
interest to the holders of the Bonds. In fact, the payments
yielded by the Whitewater and Ironwood GIC's exactly equaled the
debt service requirements needed to pay the bondholders.
Pursuant to "Collateral Security Agreements", MCFC Nos. 47
and 30 pledged the Whitewater and Ironwood GIC's as security and
as sources of payment to the trustee, so that the trustee might
make scheduled payments to the Whitewater and Ironwood
bondholders.
Events After February 20, 1986
Standard & Poor's rating service noted that payment of
principal and interest for the Bonds was secured by guaranteed
investment contracts issued by a solid insurance company. This
security was sufficient for Standard & Poor's to issue a Triple-A
rating for the Bonds. Nevertheless, the effect of the diversion
of Bond proceeds from the developer loan fund to the purchase of
the GIC's was that no moneys were available to be expended on
construction of the projects. Mr. Etchegoyen of SBE, the general
partner of the Whitewater and Ironwood developers, sought funds
from the deposit agreements with Unified so that he might
undertake construction of the projects, but Unified refused.
When he sought to determine why he could not get the funds, Mr.
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