General Services Administration's Debt Management Problems With Its Participation Certificates

Information on the problems the General Services Administration (GSA) is having in the debt management of participation certificates which were sold to finance certain buildings under the 1972 purchase contract authority is presented. No conclusions concerning the validity of the GSA claims that the trustee improperly used trust funds to purchase certificates are offered because the matter is in litigation. GSA is experiencing problems complying with the terms of the indentures relating to: (1) the use of market purchases as a credit against mandatory annual redemption; and (2) the incorrect computation of installments for annual redemptions.

In 1979, the trustee issued "event of default" notices for two indentures because about $7 million of certificates were not redeemed to meet mandatory sinking fund installments in 1976, 1977, and 1978. GSA deposited funds with the trustee to cover the shortages disclosed to date in an effort to cure the claimed defaults. In the event of default, the trustee or holders of 25 percent of the outstanding certificates may declare the entire amount of certificates due and payable immediately. As of June 21, l979, this has not occurred.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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