Wall Street Offered Virginia State Fair a Slick Deal

Aware of the virtually unlimited array of fried foods that a fairgoers can purchase on a stick, Virginia State Fair organizers shouldn’t have been surprised at the similarly impressive range of financial deals that Wall Street titans were willing to cook up for them.

When organizers decided several years ago to move their fairgrounds to a historic horse farm further outside Richmond’s city limits, they hedged their borrowings by relying on a financial tool invented by financial wizards—a synthetic rate swap.

The synthetic swap pitched by Memphis, Tenn., investment firm Morgan Keenan, which hasn’t been shy about pushing complicated financial products on investors, was meant to make the fair operator’s interest payments a bit cheaper from month to month. Under the rate swap, the fair operator converted the variable rate of interest it was scheduled to pay out on two-thirds of its $49 million worth of tax-exempt bonds to a fixed rate.

But the deal put another drain on the fair operator’s finances, adding to the debt load it faced as it plunged into Chapter 11 bankruptcy protection last week. Documents filed with the U.S. Bankruptcy Court in Richmond show that the fair operator’s payments under the swap agreements amount to about $97,000 per month.

Those payments make up just one piece of the company’s perplexing debt structure. That debt includes about $26 million in corporate bonds, the $49 million in tax-exempt bonds and roughly $20 million in loans from the U.S. Department of Agriculture. (The agency also agreed to back a majority of its corporate bond debt.)

It took six pages in court documents for organization president Curry Roberts to explain what seemed like an awfully complicated debt structure for a group that’s primarily in charge of running an annual 11-day festival and maintaining its 360-acre venue. Roberts and the fair operator’s attorney did not return phone calls seeking comment on Friday.

The fair organizer turned to Chapter 11 bankruptcy as it struggled to pay off its debts, even though it saw record attendance of more than 250,000 people at this fall’s fair. The increased revenue wasn’t enough to make up for the rainy weather that hurt attendance the year before, according to court papers.

The organization’s investment portfolio took a hit when the markets sagged in the recession, triggering a series of equally unpleasant consequences for its debt. It also fell short on its $12 million fundraising goal by about $3 million.

The organizer filed for bankruptcy protection on Thursday, the day it was scheduled to make an interest-rate payment that would have “endanger[ed] near term operations,” it said in court papers.

-Patrick Fitzgerald contributed to this article.