Showdown Over LATC Bonds Today? : Stage: Default might be considered an option as ‘the most cost-efficient’ method for the city to buy the theater building.

The bonds that built Los Angeles Theatre Center are perched on the edge of default, and a showdown over the issue may occur today.

A $388,031 payment on the bonds is due Dec. 15. Yet the city’s Community Redevelopment Agency--which has been funding the bond payments on behalf of the LATC investment trust that owns the building--might decide today to stop paying.

The CRA board will consider a report from its Theatre Center committee that recommends the agency take title of the LATC facility “in the most cost-efficient manner.” The report made no mention of the Dec. 15 payment. Recent bond payments have been individually approved by the CRA board and the City Council.

CRA Chairman Jim Wood confirmed the possibility that the agency might not make its customary payment: “I’m going to try to pay the least amount I can to ensure that the facility is available to the City of Los Angeles.”

This does not mean the city is giving up on the LATC. On the contrary, it may mean that the city is angling to acquire title to the LATC building at 514 S. Spring St. on the least-expensive terms--those that would prevail in the event of a default--in order to continue using the building as a theater.

The bondholders might not like these terms. A bondholders’ spokesman warned that such a strategy could result in legal action and damage the city’s reputation in the investment market.

“If (the bonds) default, it will not be a quiet one,” said John Gresham, director of municipal research for M. L. Stern, a brokerage firm that represents about 80 LATC bondholders. He said he would be at the CRA board meeting today.

“As regards the debt service payment due this month, we trust the CRA and city will do what is best for all parties involved,” said LATC artistic director Bill Bushnell, who declined further comment.

The bonds in question, technically “certificates of participation,” were sold in 1982 at 12.75% interest, raising $4.8 million for the construction of LATC. About $4.7 million of the principal remains to be paid.

The debt could be refinanced--retiring the original bonds--no earlier than Dec. 15, 1992, 14 years before the scheduled retirement. However, a pre-payment penalty equivalent to 3% of the outstanding principal would also have to be paid then.

Were there to be a default, the pre-payment penalty could be avoided, according to the trustee. In those circumstances, “the bondholders are happy to get out” with the principal, the interest accrued to the default date, expenses and anything else they can negotiate from the buyer of the property, said Keith Marshall, a Security Pacific Bank official who acts as trustee for the certificates.

And who might the buyer be?

Barring objections by the City Council, the CRA is the likeliest candidate. LATC officials advocated last spring that the CRA take title. A city purchase of LATC has been recommended by the CRA’s LATC committee and also reportedly by a commission appointed by Mayor Tom Bradley to study the future of the facility.

“If the CRA moves quickly to pay what’s owed (in principal, interest and expenses), perhaps the matter could be resolved quickly,” said Gresham, the bondholders’ broker.

But “if the bondholders feel the city is taking advantage of them, there might be more legal expenses down the road than the cost savings (from the default),” he continued. He suggested that a default could affect the standing of the city and the CRA in the bond markets and “damage LATC’s ability to raise funds.”

While the CRA isn’t legally responsible for the bond payments, Gresham said, the agency has “a moral responsibility.” The agency “is responsible for locating LATC where it is”--in the troubled Spring Street area, which was supposed to redevelop around LATC and several other projects. Those include a state office building and a parking structure, only now being completed several years behind schedule. This delay has contributed to LATC’s inability to support itself, according to some theater and city officials.

CRA chairman Jim Wood rejected the idea that a default would reflect badly on the city or the CRA. “I’m not inclined to be bamboozled into treating these as municipal bonds,” he said, emphasizing that the bonds were not backed by “the full faith and credit” of the city.

The prospectus that was sent to the investors includes this caveat on the first page: “Neither the Certificates offered hereby nor the Obligation of the Agency (CRA) to pay installment payments constitutes a debt of the Agency, the City of Los Angeles . . . or a pledge of the faith and credit of the Agency. The Agency has no taxing power.” Such disclaimers are standard language in certificates like these, said a broker for some of the bondholders: “This particular issue limits the obligation to the revenues of the facility, not to any general fund (that might be augmented by taxation).”

Wood said that the investors have already benefited from the comparatively high (by 1990 standards) interest rate and tax benefits (the bonds were federal and state tax-exempt). The bonds “are held by people who speculated on the Theatre Center being able to pay them off.”

“I have no sense of finger pointing,” he said. He acknowledged that the CRA’s development of Spring Street was late in taking off. But now it’s beginning to happen, he said, “and we have arrived at a mechanism for guaranteeing that the city has a cultural resource. . . .

“The only way we can have a conversation with (the bondholders) is to not pay” on Dec. 15, he said. “Then the strength of our argument that we don’t owe them will become clear.”

He questioned whether the bondholders would want to enter protracted litigation over the default. Such a lawsuit would take “a long, long time,” he said. “When the city would get the building is doubtful; but that they will get it is certain.”