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The other shoe falls: bond daddy Jim Swink defaults on $3.9 million at Spring Plaza.

The Other Shoe Falls Bond Daddy Jim Swink Defaults On $3.9 Million At Spring Plaza

Watchdogs who were waiting for the other shoe to fall after the Little Rock bond house of Swink & Co. was dragged into involuntary bankruptcy can end their vigil. The company's former namesake owner, Jim Dale Swink, has defaulted on the $4.2 million bond issue that backed his acquisition and renovation of the Spring Plaza Building. The total outstanding balance on the bonds is about $3.96 million.

"I'm still the owner and the one paying the bills," Swink comments from his home and quarter horse ranch in west Little Rock. He adds that efforts are underway to resolve the technical default, perhaps through a sale of the property.

Mercantile Bank in Jonesboro, the trustee for the 1983 revenue bond issue, has sent out formal notification to the bondholders that Swink failed to make the June 1 payment.

At this stage, it's unclear what the financial fallout will be for the various parties involved. Most of the players should emerge relatively unscathed, but ones who may not are Swink and his wife June, both personally on the line for nearly $1 million of the debt.

In the wake of the default and other financial difficulties, the Swinks are brushing dangerously close to the realm of personal bankruptcy. Some insiders believe they have already suffered irreparable damage to their fiscal wherewithal and predict the Swinks will file a personal bankruptcy petition during the coming weeks.

Whether that grim scenario plays out remains to be seen, and sources indicate that Swink and his representatives are still negotiating behind the scenes to salvage things through a settlement with the bondholders.

The First Shoe Falls

The countdown for the anticipated default at Spring Plaza began when Swink lost a reported $2.5 million from speculative trading of government securities in December (Arkansas Business Jan. 15-28). This caused the net capital of Swink & Co. to plummet below regulatory requirements.

The bond payments on Spring Plaza were predicated on Swink & Co. masterleasing the 43,960-SF office building, and that went as planned for six years after the firm moved from the Tower Building into its new quarters. However, the source of those masterlease payments evaporated when Swink & Co. was forced to close its doors after taking the hit.

The masterlease payments totaled $568,981 in 1989, and no one was left to pick up this year's tab. The occupancy rate fell from 80 percent to 35 percent with the demise of Swink & Co. The 100-employee firm was ranked among the 10 worst underwriters for municipal bond defaults in 1988 by Forbes.

Merrill Lynch, Pierce, Fenner & Smith and Morgan Stanley & Co. dragged Swink & Co. into voluntary Chapter 7 bankruptcy in January after suing the firm for a total of $1.2 million for unpaid debts associated with Swink's speculative bond trading the previous month.

Everyone's Exposure

Although negotiations are continuing, insiders believe the Spring Plaza bond issue will eventually be collapsed by the trustee. That could happen as early as June 30 when the principal Swink owes becomes 30 days past due.

The interest payment on the past due principal is scheduled for June 15, and Worthen Bank & Trust will be called on to meet that obligation with $150,000 if Swink doesn't.

The bond issue is divided into two separate series with semiannual payments scheduled on June 1 and Dec. 1 of each year beginning in 1984.

The Series A bonds, with about $3.03 million outstanding, are backed by a letter of credit through Worthen. The Swinks are personal guarantors of the Series B bonds and bear joint and several liability for an outstanding balance of about $955,000.

The Swinks were required to put up at least $250,000 worth of collateral to be held by the trustee as security for the Series B bonds. At the time of the bond issue, they put up $265,000 worth of revenue bonds issued by the city of Brooksville, Fla., to finance the Tangerine Retirement Center project in 1983.

"My most recent information is that he has replaced that collateral with U.S. treasury notes," reports George E. Campbell of the Rose Law Firm, bond counsel for Mercantile Bank. "I do know the trustee has collateral with a clear value of at least $250,000 as required under the terms of the bond issue."

The Series B bonds are subordinate to the Series A bonds. In the event the bond issue is collapsed, Worthen would pay off the outstanding balance to the Series A bondholders and foreclose on Swink if necessary to gain title to Spring Plaza.

That course of action seems likely since Worthen could've made the June 1 bond payment for Swink but opted not to. Worthen has been carrying the untapped letter of credit as a liability on its books for many months now, so if the note is called by the trustee, the $3 million payout won't have a material effect on the bank's balance sheet.

"We've recognized the potential for this years ago and are prepared to deal with it," remarks Curt Bradbury, CEO of Worthen Banking Corp. "We're just waiting to see what happens and exercise our rights and obligations at that time."

If the bond issue is collapsed, the Series B bondholders would receive a prorated share of the $250,000 collateral held by the trustee. That would leave an outstanding balance of at least $705,000 owed personally by the Swinks.

Faced with this potential chain of events, Swink is dickering from a position that Spring Plaza is worth more to the bondholders if they:

* Accept partial payment on the outstanding balance of the Series B Bonds and release him and his wife from any remaining liability.

* Allow him to retain ownership and modify the payment terms of the Series A bonds through a deficiency note or some other arrangement.

Acting on behalf of the bondholders, the trustee basically has three payments are made current, work out a settlement with the theory of collecting more money in the long run than the original terms would allow or declare the bonds in default and take action to collect the security.

Prior to Swink developing the Spring Plaza project, the city of Little Rock had a stake in the property and hoped to develop a downtown sports complex. That idea didn't get past the voters, though. The only sport underway at the northwest corner of 4th and Spring is the game of survival.

PHOTO : DISTRESSED PROPERTY: Worthen Bank & Trust will soon become the new owner of the Spring Plaza Building if the prognostication of insiders proves accurate.
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Title Annotation:Spring Plaza Building
Author:Waldon, George
Publication:Arkansas Business
Date:Jun 18, 1990
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