Martin Z. Braun and Maxwell Adler, Bloomberg News

(Bloomberg) — Legacy Cares Inc., a nonprofit organization created to build and operate a sprawling 320-acre youth-sports and entertainment complex in Arizona, filed bankruptcy, according to a court filing Monday.

The bankruptcy may include the sale of the nonprofit’s interest in the complex, pursuant to a reorganization plan. Miller Buckfire, which was retained by Legacy Cares to investigate options, has begun preliminary marketing, according to a notice on EMMA, an online repository for disclosure run by the Municipal Securities Rulemaking Board.

“No assurance can be given if or when the borrower’s interest in Legacy Park will sell or at what price,” according to the securities filing dated May 1.

The nonprofit wants permission for a debtor-in-possession loan of as much as $9 million from UMB Bank, the trustee for the facility’s investors, so the park can keep operating while the bankruptcy case makes its way through court.

‘Revenue Burn’

Legacy Cares’ assets are “severely underwater,” according to a bankruptcy declaration dated May 1. “Moreover, the Park’s losses total approximately $1,000,000 a month in its operations; and this revenue burn will only increase as we approach the summer season, which is the slowest part of the year for the Park’s business,” the declaration said.

“When you build these facilities you’re hoping for a 12-month operation,” said Nick Wise, professor at Arizona State University School of Community Resources and Development. “But the biggest challenge here in the East Valley is the seasonality of the weather, and going into the summer, things really start to heat up.”

Legacy Cares defaulted on a January debt payment on $284 million of bonds issued in 2020 and 2021 through the Arizona Industrial Development Authority to finance the project. The nonprofit listed $353.3 million in secured claims and $13.4 million of unsecured claims, in its bankruptcy filing in U.S. Bankruptcy Court for the District of Arizona. It listed assets of $242.3 million.

The complex in Mesa, east of Phoenix, opened in early 2022. It was expected to generate around $100 million of revenue in its initial operating year, according to 2020 bond documents. In July, Legacy Sports USA CEO Chad Miller told investors on a call that the project was losing roughly $800,000 per month. The park generated $27.7 million in revenue in 2022, according to the bankruptcy documents. Legacy Sports managed the park from its opening until the end of March 2023.

Wi-Fi Woes

Legacy Cares has blamed supply chain bottlenecks, pandemic-related lockdown restrictions and labor shortages for the park’s financial woes. Additionally, revenue generated by ticket, parking and concession sales were constrained by Wi-Fi problems and a lack of cellphone service that made it difficult for the organization to consistently charge customers, according to the declaration.

“Legacy Cares intends to use this process to protect and support the Park’s business operations and address Legacy Cares’ debt obligations while working towards an orderly and efficient possible sale of Legacy Cares’ assets in a manner that maximizes their value,” Legacy Cares President Douglas Moss said in an emailed press release.

Related Story: Arizona Sports Complex Defaults on January Debt Payment

Legacy Cares municipal bonds, which trade infrequently, are valued at about 65 cents on the dollar according to pricing valuations compiled by Bloomberg BVAL.

Municipal bond funds hold the vast majority of Legacy Cares debt, according to data compiled by Bloomberg. Tax-exempt funds from the Vanguard Group were the biggest holder, with about $97 million of the securities as of Jan. 31. As a policy, Vanguard doesn’t comment on individual holdings.

“Vanguard is one of the largest municipal bond fund managers, and our municipal bond fund lineup is broadly diversified with each portfolio comprising thousands of securities. As a result, no one issuer has an outsized impact on a portfolio’s return,” said Freddy Martino, a spokesperson.

AllianceBernstein Holding LP municipal bond funds were the second-biggest holder, with about $60 million, according to data compiled by Bloomberg. Carly Symington, a spokesperson didn’t respond to a request for comment.

(Updates with details from filing starting in fourth paragraph, company comment in 10th paragraph and bonds in 11th paragraph.)

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