Robinson v. Housing Authority of The City of Newark
A class action was filed in state court captioned as Robinson v. Housing Authority of The City of Newark in New Jersey against the Housing Authority of the City of Newark and U.S. Bank, N.A., as trustee (jointly, the “Defendants”) for the following bond issuances:
- $200,420,000.00 Port Authority – Port Newark Marine Terminal Additional Rent-Backed Bonds, Series 2004 (City of Newark Redevelopment Projects) (CUSIP No. 65037RAJ(9),
- $7,780,000 Housing Authority of the City of Newark Port Authority – Port Newark Marine Terminal Additional Rent Backed Bonds, Series 2007 (City of Newark Redevelopment Projects) (CUSIP No. 65037RCF5), and
- $168,320,000 Housing Authority of the City of Newark Port Authority – Port Newark Marine Terminal Additional Rent-Backed Refunding Bonds, Series 2007 (City of Newark Redevelopment Projects) (CUSIP No.65037RCJ7) (collectively, the “Bonds”).
The case seeks to certify a class that includes all bondholders, and successors-in-interest, who hold or held the above Bonds on and through December 5, 2011 and have been damaged thereby.
The complaint (available here) alleges state law claims for negligence and breaches of fiduciary duties against the Defendants. Initially, the Debt Service Reserve Fund for the Bonds was invested in a guaranteed investment contract (“GIC”), issued by MBIA Insurance Corporation (“MBIA”). In 2009, the GIC was cancelled following the downgrade of MBIA and the Debt Service Reserve Fund was subsequently invested in a money market fund which reinvested in U.S. Treasuries. Investment earnings on the Debt Service Reserve Fund under the GIC were 5%. Investment earnings since 2009 from U.S. Treasuries have been substantially lower than 5%.
According to a December 5, 2011 report issued by Standard & Poor’s (“S&P”), in fiscal 2010, the investment earnings from the money market fund yielded a return lower than the amount needed, together with the annual rental payment, to fully meet the debt service on the Bonds. To avoid a default, the Authority directed the trustee, U.S. Bank, to make a one-time transfer of approximately $82,000.00 from the construction fund set aside for completion of the projects to cover the shortfall. S&P issued a substantial downgrade of the Bonds on December 5, 2011.
As a result of the eight-notch downgrade of the bonds from AA- to BB by S&P on December 5, 2011, the trading prices of the Bonds have been negatively impacted. Bondholders who sold their Bonds since December 5, 2011 have incurred losses, and those who continue to hold the Bonds have seen the value of their holdings diminished as there is a market-perceived potential for default on the Bonds in the future and prior to maturity.