Oops! Home of the Haughty Hamptons Accidentally Defaults
As if Suffolk County, home of the Hamptons and playground of the rich and famous on New York's Long Island, didn't have enough financial problems.
A regulatory filing on behalf of the county dated April 16 shows that it accidentally missed an interest payment on some of its debt, including $76.1 million of public improvement bonds, putting the county technically in default. Oops.
The county is wealthy, with per-capita income well above the national average, but it has run into difficulty recently, declaring a fiscal emergency last year after an independent task force predicted a three-year deficit of $530 million.
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The county could have a budget shortfall of as much as $250 million by the end of 2014, local officials said last month.
The error is more of an embarrassing glitch than anything else. The missed payment—$722.65—would be small change for many of the county's residents.
That will buy fewer than 20 butter-poached lobster rolls (not the most expensive thing on the menu) at Dave's Grill in Montauk, a quaint fishing village on the island's southern tip, or just 10 bottles of Merry Edwards Sauvignon Blanc Russian River 2009 at La Plage in Wading River. A mere picnic.
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The mistake was pointed out by the Depository Trust Co., a clearing firm, the day after the payment was missed. The filing said the error was the fault of the county's escrow agent, M&T Bank.
"The county informed M&T of its error, and the escrow agent immediately wired the $722.65 payment to DTC," the regulatory filing said.
What went wrong? According to Richard Tortora, president of Capmark Financial Group, the county's financial adviser, Suffolk County was making the first payment in a complicated arrangement that uses $17 million in state HEAL grants for medical costs, primarily related to the Foley Nursing home.
The $722.65, part of a debt payment of over $1 million, was the portion of the payment from the HEAL grants. The $17 million is being held in an escrow account at M&T.
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"M&T for reasons we can't fathom just blew it: 'Oops, it wasn't in our system—we missed it,' " said Tortora. Missing the payment and having to make a regulatory filing with the Municipal Securities Rulemaking Board was frustrating after the months spent putting the arrangement together for the county, he said.
Representatives for M&T Bank were not immediately available for comment.
Fitch Ratings downgraded Suffolk County's general obligation bond rating to A from A-plus last month, affecting about $1.4 billion of debt. General obligation bonds have the full faith and credit of the issuer and are the best gauge of how risky investors think the debtor is.
Fitch said it had concerns about the county's ability to become financially stable, let alone reduce its deficit.