A letter of credit (L/C) guaranteeing US bonds is proving problematic for JPMorgan Chase since the YMCA in the US state of Connecticut stopped making debt service payments on its borrowings.

The YMCA raised more than US$20 million in tax-free bonds that were issued by Connecticut Health and Educational Facilities Authority (CHEFA) for an expansion project at a building in Greenwich, Fairfield County.

Expansion project

When the YMCA raised money via the bond, it had to secure an L/C and obtained one from JPMorgan Chase.

The expansion project ground to a halt 18 months ago, and the YMCA has not been making debt service payments for around a year according to CHEFA.

Bondholder obligations

Of the US$20.2 million borrowed by the YMCA in 2005, around US$19 million remains outstanding.

However, JPMorgan Chase has paid bondholders their dues.

Court case

JPMorgan, which reportedly owns most of the bonds today, is now taking both the YMCA and the town of Greenwich to court.

In an apparent bid to resolve the debt, the bank is asking the court to remove a deed restriction that limits the use of a YMCA building in Greenwich.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.