Bankruptcy court complicates suits over failed NFL facility in South Carolina

Bonds

The failed endeavor to build the Carolina Panthers football franchise a new headquarters in York County, South Carolina, has resulted in a thorny legal battle over who is to blame.

Construction on the planned $800 million mixed-used facility in Rock Hill, meant to include state-of-the-art training facilities, office space, millions in utility investments, and green areas open to the public, was canceled in April after developer GT Real Estate, founded by Panthers’ owner David Tepper, said funds promised by municipal officials, including a $225 million municipal bond offering from the city of Rock Hill, never materialized.

Dogged by resulting lawsuits seeking to recoup millions lost on the project filed by governments of York County and Rock Hill, where the complex was to be located, along with by the project’s construction contractor, GT Real Estate filed for Chapter 11 bankruptcy protection in a Delaware court on June 1.

Downtown Rock Hill, South Carolina. The city is in a legal fight over a failed plan to build a training center for the Carolina Panthers NFL team.

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“The Project’s success depended on significant financial and political engagement from City and County,” GT claimed in the filing, adding that pledged public support in the form of the Rock Hill municipal bonds never materialized.

Rock Hill, whose general obligation bonds are rated AA-minus by S&P Global Ratings and Aa3 by Moody’s Investors Service, filed a complaint and sued in a South Carolina court seeking at least $20 million and claiming GT, not the city, is responsible for the breakdown in financial backing after official concerns about the structure of the bond deal the company had drafted that were ignored.

They went as far as to call the deal “fraudulent,” citing issues with the taxability status of the notes as well as the debt servicing scheme behind it, claiming the city never agreed to the issuance and that the deal was crafted with no official input other than from GT Real Estate.

York County is also suing GT Real Estate for $21 million, claiming it squandered funds meant for road construction on the failed project, as well as Rock Hill; county officials say the city mismanaged the entire deal.

In a blow to officials in both governments, who filed an injunction last month seeking to move the case to South Carolina from Delaware, a bankruptcy judge approved a debt restructuring plan proposed by GT Real Estate allocating around $60 million to construction contractors to cover debts but cutting the city and county out entirely.

GT claims in the approved plan they had offered the city and county $40 million to cover losses on the project in June, providing “clear paths to recoveries for the City and the County” that it hoped “would be met with receptiveness or at least a willingness to negotiate further regarding a fair and reasonable resolution to the failed Project.”

However, the city and county followed with “exorbitant counter-demands and unreasonable conduct,” forcing the company to seek out Chapter 11 protections, GT says in the bankruptcy court filing.

The plan still needs approval in a bankruptcy confirmation hearing, but if GT is successful York County and Rock Hill will have to pursue their claims through the bankruptcy court.

Despite the massive size of the flop, the deal will have little effect on the overall credit health of the municipality.

“We would have already reviewed the rating and taken an action if we felt like this particular situation was going to affect their credit quality, but the city had not put their full faith and credit behind any type of obligation,” said S&P rating analyst Nora Wittstruck.

Rock Hill’s creditworthiness is buttressed by a growing economy that’s recovered well from the COVID-19 pandemic, specifically a sports tourism sector that draws visitors from nearby Charlotte, North Carolina, she said.

Along with a growing population and healthy reserves, the city’s long-term debt and liability profile are “fairly manageable as well,” and a credit positive, regardless of the current debacle.

“We’ve had other situations in the U.S. where local governments have put their full faith and credit behind an obligation and they have been decided as the project went south, not to appropriate for debt service,” she said.

“That we would see as being a credit pressure, particularly if they didn’t stand behind their obligation to pay debt service on any of the debt that they issued. That is not what Rock Hill did,” Wittstruck said.

The plans eventually broke down because Rock Hill didn’t issue bonds.

“The views are that their economy will continue to grow, and although this development was going to contribute to that gross, they weren’t relying on it,” she said. “They didn’t factor in any of the revenues or the jobs from the project into the forward-looking forecasts in terms of their budget.”

South Carolina has poured millions of capital investments over the last two years.

Like many other states, it is “sitting on a ton of federal stimulus funding,” she said, and investors are likely to see investment in large and small municipal projects financed by those funds for at least another six months to a year, according to Wittstruck.

The city also rated AA-minus by S&P Global Ratings.

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