Syncora Guarantee Inc.’s claims that a California law diverting redevelopment agency funds to the state jeopardizes bond payments are premature, a state judge ruled, saying no redevelopment agency bonds are in default.
Judge Michael Kenny in Sacramento denied bond insurer Syncora any relief on claims in a lawsuit it filed last year that bond contracts were impaired by a California law that abolished redevelopment agencies and channeled their funds toward education, road and fire departments.
The law, which dissolved 400 redevelopment agencies in California, was passed to avoid a shortfall in money for schools and other projects. Taxes going to the agencies were blended in caretaker funds run by local governments that pay investors.
Syncora alleged the law took away tax increment funding that is irrevocably pledged as security for redevelopment agency bonds. More than $11 billion in redevelopment agency bonds were cut to junk status because of uncertainty about repayment caused by the law, company lawyers said in court filings.
Syncora claimed the abolishment of the agencies changed the amount of tax funds available as security for bondholders from the entire amount available in a given fiscal year to the amount due in the next payment schedule period, which is used to make debt service payments rather than held as security, Kenny said.
Even if this is true Syncora didn’t show that the takeaway of security meant bondholders wouldn’t be paid, he said.
Kenny ruled that Syncora could present evidence that it’s suffering damages and losses even though no bonds have defaulted.
Michael Corbally, a spokesman for Bermuda-based Syncora Holdings Ltd., parent of Syncora Guarantee, said in an e-mail that the company doesn’t comment on pending litigation.
The case is Syncora Guarantee Inc. v. State of California, 2-80001215, California Superior Court, Sacramento County.