Opinion

State Fair took odd ride to bankruptcy court

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Print this page by Robert Powell

Like a Ferris wheel, the stock market continually goes up and down. State Fair of Virginia officials say it is in bankruptcy court today because lenders forced it to get out at the bottom of the ride.
The State Fair of Virginia Inc. (SFVA), the fair’s nonprofit parent company, filed for Chapter 11 bankruptcy court protection in early December after failing to reach agreement with lenders on restructuring its debt.
The bankruptcy stems from the $85 million in debt it accumulated in moving the fair in 2009 from its longtime home in Henrico County to Meadow Farm in Caroline County.
SFVA used tax-exempt bonds, taxable bonds and loans to buy the property and build facilities for the new fairgrounds.  Those debts were to be repaid using money earned from a $42 million investment portfolio. Today, that portfolio is worth less than half that amount, in part because SFVA was forced to sell its investments in March 2009 after a gut-wrenching plunge in the stock market.
“We sold a week after the market hit bottom,” says Curry Roberts, the president of SFVA.
But before we dig into the numbers, let’s look at why the fairgrounds now are in Caroline, 21 miles from their former home.
The State Fair has made a number of moves since it began in 1854 at what is now Monroe Park in Richmond. In 1941, the fair set up shop at the 315-acre site in Henrico, a former estate known as Strawberry Hill.
Five years later the first auto race was held on a half-mile dirt track at the fairgrounds. The separately owned racetrack eventually became Richmond International Raceway, which now seats nearly 100,000 spectators at NASCAR events each spring and fall.
As RIR grew, it needed more space, so in 1999, it bought the entire fairgrounds property for $47 million.  After looking at a possible site in eastern Henrico County, SFVA bought Meadow Farm for $5.3 million in 2003.
SFVA didn’t just acquire a piece of property in Caroline, it got a piece of history. The 360-acre farm was the birthplace of Secretariat, the 1973 winner of horse racing’s Triple Crown.
The renamed Meadow Event Park now includes a 75,000-square-foot exposition hall, a 10,000-square-foot, multipurpose pavilion, a horse barn with 143 stalls, and an equine facility with four show rings. (And, yes, the barn where Secretariat was born still stands.) In addition to the State Fair, SFVA also produces a steeplechase (the Strawberry Hill Races) and the Meadow Highland Games and Celtic Festival.
In 2007, a group of lenders — including Farm Credit lenders, the U.S. Department of Agriculture and Regions Bank — set up the financial structure for repaying SFVA’s debts. The key factor was its investment portfolio, which was expected to produce an 8 percent annual rate of return for 10 years. Seventy to 80 percent of the $42 million portfolio was invested in stocks with the rest in fixed-income securities. In addition to financing the fair’s debts, the portfolio also was supposed to serve as collateral on its taxable bonds.
SFVA’s fortunes changed dramatically as the stock market plummeted in late 2008 and early 2009. The value of its portfolio dropped below the $35 million minimum set in its financing agreement.
According to court papers, SFVA officials met with lenders in February 2009 to talk about ways to restructure its finances. SFVA wanted to defer some debt payments until operations began at Meadow Event Park later that year. The lenders, however, rejected that idea. They wanted the SFVA to sell its stocks, taking the now $26 million portfolio to a cash position (holding only cash or highly liquid cash equivalents). The lender group also wanted SFVA to ratchet down the scale of fairgrounds construction, freeing up $2 million to pay debts.
In its filings, SFVA says it reluctantly agreed to the selloff only because it expected to get a $10 million loan or grant from the USDA, one of its lenders. Instead, it got a bridge working capital loan with a 7-year amortization. Eventually SFVA was allowed to reinvest its portfolio, with 45 percent in stocks and 55 percent in fixed-income securities, after the market had been on a rebound for many months.
According to court papers, the fair operator told lenders at the time that “by selling at the bottom of the stock market and not reinvesting until the market had recovered nearly 50 percent of its value, SFVA would be hard pressed to meet the debt service required in the deal when the portfolio was valued at $42 million.”
Complicating matters was bad weather that hurt attendance for the 11-day fairs in 2009 and 2010. The result was more funds being drawn from the portfolio. Last September’s fair, by contrast, drew its biggest crowd since 2007 — 250,000 — 44,000 more than the year before.
But by November, things were looking grim. SFVA’s cash balances were dwindling and lenders would not allow further draws on the investment portfolio, which now totaled only $20 million. When SFVA could not reach a new financing agreement with lenders, it filed for Chapter 11 on Dec.1.
While its case winds through bankruptcy court, SFVA has an agreed-upon operating plan through March 7. Will it be able to hold a fair this fall? “That’s our intent,” says Roberts.


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