By Matthew Hendley
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Symington was forced to renegotiate the shortfall with First Interstate. The bank granted a one-year extension on repayment; the full amount was due in June 1991. First Interstate Bank also got Symington to personally guarantee repayment of the loan.
McMorgan wanted the same sort of guarantee.
"We had one of those eyeball-to-eyeball meetings," says Paul Morton, a McMorgan vice president. "We needed to collateralize this loan because of the changing market."
Normally, McMorgan would have had very little leeway in changing the loan commitment signed by Miller and Symington in October 1987. But McMorgan had been dealt a powerful negotiating card.
Symington was no longer just another private developer. He was in a five-way primary race for the Republican gubernatorial nomination. Any delays in the Mercado project might have publicly exposed Symington's financial weaknesses prior to the election.
So Symington signed a personal guarantee pledging his assets to repay the pension fund loan. Symington's wife, Ann, also signed the guarantee, pledging any assets she and her husband held as their community estate.
As part of the guarantee, Symington submitted a financial statement that, the couple promised, was "true and correct."
The December 31, 1989, financial statement--signed only by Fife Symington--said their community property was worth $12 million, McMorgan officials say.
With the guarantee and financial statements signed and delivered, McMorgan funded the $10 million permanent loan on June 29, 1990.
The ink was barely dry on the pension fund loan when the Mercado suffered its first major public blow. In early July 1990, an anchor tenant, C. Steele & Company, closed its doors, just seven months after Mercado's grand opening.
The restaurant and catering business, one of the largest retail tenants in the Mercado, never paid rent before shutting down. Symington Company officials tried to put the best spin on failure. Company president Randy Todd contended "there are a lot of good things happening" at the Mercado.
Symington survived the fallout politically, winning the September 1990 Republican gubernatorial primary. But Democratic candidate Terry Goddard, who strongly backed city support of Mercado while Phoenix mayor, sensed an opening.
As the general election approached, Goddard focused increasingly on apparent weaknesses in Symington's development company. The week before the election, Goddard ran television ads stating Symington's development projects were $200 million in debt. Symington was livid, claiming Goddard was attacking below the belt.
But Symington survived, defeating Goddard in a February 1991 run-off election.
Once in office, Symington wasted little time attempting to shore up the Mercado's poor leasing. He had little time to turn the project around; if more space were not leased, loan reserves set aside to make mortgage payments would be exhausted. Then Symington's company would be responsible for the shortfalls.
In May 1991, McMorgan officials held a series of discussions with Symington concerning repayment of the loan. The governor warned McMorgan that the only way the loan would be repaid was for the pension funds to work with Symington, McMorgan officials say.
The governor, McMorgan officials say, indicated that only he had the power to make the project work.
McMorgan was not impressed with Symington's political muscle-flexing, or his demand for a "workout" of the loan's terms.
"What we need from you is dollars," a McMorgan official says was the reply to Symington's renegotiation demand.
On May 31, 1991, Symington responded to McMorgan's request for payment with a stunning document. The governor--who 11 months earlier submitted a financial statement claiming he and his wife had a net worth of $12 million--voluntarily sent a new financial statement to McMorgan.
According to Superior Court documents, this statement was prepared by Symington's personal accountants--Coopers & Lybrand.
As related by McMorgan officials, both Coopers and Symington contended the governor wasn't the wealthy developer he claimed to be only months earlier. Instead, the new financial statement said Symington was $23 million in the red, McMorgan officials say.
Somehow, Symington had seen his net worth plummet by $35 million in 11 months.
Two days after Symington declared his massive indebtedness to McMorgan, the governor defaulted on the $1 million loan to First Interstate Bank that he had renegotiated and personally guaranteed.
First Interstate Bank couldn't do much about Symington's refusal to pay; a foreclosure action would leave the bank in "second position," behind the pension funds that would have primary claim on the Mercado property.
Once it became clear Symington wasn't going to make payments to either the bank or the pension funds, McMorgan notified the governor it planned to foreclose on the Mercado.
McMorgan sent a notice of trustee sale to Symington on October 10, 1991. Symington's response to the notice was terse. According to McMorgan officials, the governor said the pension funds will be unsuccessful in forcing him to make good on his personal guarantee to repay the $10 million loan because he was broke. Symington said he and his wife had no community assets--despite the financial statement a year earlier showing joint assets of $12 million.
Symington also warned McMorgan that if the pension funds insisted on calling in the personal guarantee, the governor would simply file for bankruptcy.
Nearly four years after Symington first told McMorgan officials that he would file bankruptcy rather than pay his debt to the pension funds, the governor acted. On September 20, he sought Chapter 7 protection in U.S. Bankruptcy Court.