Bank withholds aquarium bond funds.

Byline: LARRY BACON The Register-Guard

NEWPORT - Because the Oregon Coast Aquarium has quit making regular monthly payments into a bond holder trustee reserve fund administered by U.S. Bank, the bank chose not to make a $610,000 principal payment that was due Oct. 1.

Instead, bank officials notified bond holders that they will pay only the interest owed on the bonds.

"The trustee is in the process of evaluating available alternatives to pursue on your behalf," the bank's corporate trust service said in a letter to bond holders.

Because of financial difficulties, the nonprofit aquarium quit making $100,000-per-month payments into the reserve fund in April and had acknowledged that fact in public statements made earlier this year.

To date, the aquarium is nearly $600,000 behind in bond payments.

The aquarium's financial crisis peaked this summer when its board learned that former President and Chief Executive Officer Phyllis Bell had secured a $2 million bank loan without board authorization to help cover about $3 million in unreported costs for the aquarium's "Passages of the Deep" exhibit, which opened in May 2000.

Since then, aquarium executives have tried to reschedule as much debt as possible and launched a fund-raising campaign to help put the organization back on solid financial ground.

Al Gleason, chairman of the aquarium board, said Monday that the decision by U.S. Bank to withhold the principal payment due Oct. 1 was no surprise, because the bank had already taken similar action in the case of another institution in similar circumstances.

The aquarium still owes $12.9 million on a $14.1 million 1998 revenue bond issue, Gleason said.

The bank was reluctant to pay out $610,000 from the reserve fund when it's also earmarked to pay interest and principal on other bonds, scheduled to mature as far out as 2016, he said.

If the aquarium were to make no more bond payments and the bank paid all the principal owed now, holders of bonds maturing this year might get 100 percent, but holders of bonds maturing in years to come might get nothing, he said.

"The trustee has a fiduciary responsibility to all bondholders to treat them equally," said Gleason, a retired chief executive officer for PacifiCorp. "He has made the decision (that) he will do exactly that."

The 1998 bond issue was sold to refinance the bonds issued when the aquarium was built 10 years ago, plus provide about $2 million toward the "Passages of the Deep" project, which ended up costing $10.8 million.

Gleason said resumption of payments to the bond trustee fund is part of the aquarium's long-term plan to regain financial stability. But he said he can't predict when that will happen and top priority now is to try to raise a few hundred thousand dollars to help get the aquarium through the winter, when gate proceeds normally drop sharply.

In August, the Standard and Poor's bond rating service lowered the rating of the aquarium bonds seven steps, from a BB+ to a CCC.

The service will re-examine that classification in light of the latest developments and consider giving the bonds a "D" rating, which applies when interest or principal payments are not made, said Lisa Zuckerman, a Standard and Poor's analyst.

"They will do whatever they need to do," Gleason said.

The direct effect on the aquarium will be negligible, he said, because the aquarium has no plans to issue new bonds and because it doesn't have the credit rating to do so.

Bloomberg News service contributed to this report.