Gilroy
– A debt-restructuring plan intended to save Bonfante Gardens
from bankruptcy will spell millions of dollars in losses for a host
of creditors, most notably for the park’s founder Michael Bonfante,
according to details disclosed by park directors.
Gilroy – A debt-restructuring plan intended to save Bonfante Gardens from bankruptcy will spell millions of dollars in losses for a host of creditors, most notably for the park’s founder Michael Bonfante, according to details disclosed by park directors.
Bonfante, his wife Claudia, and Bonfante Nursery Inc. represent the majority of $33.8 million in debt owed to the lowest rung of creditors – those whose bonds or loans are not secured by the park’s assets. As part of the debt plan, the unsecured creditors agreed to accept a return of less than three cents on the dollar – a payout of $900,000.
Bonfante declined to comment on the arrangement, which will allow the park to nearly halve its $70 million in debt. The rest of the repayment plan hinges on a multi-million dollar land deal and “discount” arrangements with senior bondholders and creditors, the terms of which are more favorable since their investments are secured by the park’s assets.
“(The creditors) knew that if Bonfante Gardens was going to survive, we had to restructure,” said Bob Kraemer, president of the park’s board of directors. “They individually and as a group came together and said ‘We understand, if we go to foreclosure, we get nothing or go to the courts.'”
Senior bondholders have agreed to sell back $14.9 million of the park’s debt at a reduced rate of $12.6 million, while secured lender Raley’s grocery has agreed to accept $2 million for its $9.1 million in loans.
In total, the plan allows the park to reduce its current debt load of roughly $70 million to a more-manageable $12.5 million.
“That the junior (bondholders) are getting anything at all is a courtesy to them,” said Bud Byrnes, a bond broker who represents more than $1 million in Bonfante’s debt. “I hope that this restructuring will help stabilize the situation and allow the park and bondholders to go forward.”
Byrnes and other investors have sounded less optimistic in the past, at times demanding the park liquidate its assets to repay creditors.
Kraemer said officials were not always sure they could save the park.
“As board members, in about September 2002, we were highly skeptical we could keep it together,” Kraemer said. “We were very close to throwing in the towel. We were talking to bankruptcy lawyers.”
After its first year of operation in 2001, Michael Bonfante informed City Council that the park faced financial crisis. Working with the city, the park appointed a community-based board of directors to oversee the park’s finances.
“By Aug. 2002, it was painfully obvious that we did not have the organization that could effectively operate the park,” Kraemer said.
The board hired Paramount Great America in early 2003 to take over the day-to-day management of the park. In the summer of that year, the board informed all “junior” creditors that the park could no longer afford to make interest payments on bonds and credit.
By the end of 2003, the board ultimately came up with a “carrot” to keep its creditors at bay. The plan involved selling 33 acres on its western edge to Shapell Industries, which intended to use the land to create an adjunct to its Eagle Ridge community, off Santa Teresa Boulevard.
Last summer, city leaders blessed the deal by approving 99 home development permits for the park, an exception to the city’s growth-control law. Earlier this month, officials rezoned the land to allow home development, following a speedy review process by both the Planning Commission and City Council.
Kraemer said Shapell will release payment for the land by the end of July or earlier, at which time the park will pay out “junior” creditors and offer its buy-back to senior bondholders. Neither Kraemer nor a Shapell representative would disclose the exact sale price for the 33 acres.
The park will exhaust its reserve fund in May on one of two annual interest payments of $1.1 million to senior bondholders. By the time the next payment date rolls around in November, Bonfante expects to have reduced its debt load so that interest payments will be a fraction of the current amount.
As the park emerges from its financial struggles, some still wonder how Bonfante Gardens accrued such high levels of debt, given its limited earnings potential. But for Kraemer, who has estimated that over $120 million was spent on the park, the question is misplaced – at least at this point.
From the moment the park decided it could not pay back investors, he said, the $120-million figure became meaningless except on paper. In fact, the park’s list of priorities involves “writing down” the value of the land and assets in the near future.
With the land deal approved and the park expecting its second straight year of profits, officials have their sights set on different numbers.
“It’s about whether or not we’re operating at positive or negative cash flow,” said Suzy Quinn, a spokeswoman with Paramount Great America. “It’s about what’s in our pockets.”
Bonfante payout plan
Creditors Existing Debt Settlement
Senior
bondholders $14.9 million $12.6 million
Raley’s loan $9.1 million $2 million
Non-Secured
creditors $33.8 million $900,000
