During the boom years, as big housing developments mushroomed throughout the country, developers worked with local governments to raise billions of dollars for roads, sewers and sidewalks through a municipal-debt security known as “dirt bonds.”
Now, as those bonds get tested by the worst housing downturn since the Great Depression, dirt-bond investors are getting a few nasty surprises.
Take a case playing out in U.S. Bankruptcy Court in Florida involving an ill-fated 6,000-home project in Naples, Fla., known as Fiddler’s Creek. The investors who bought some $100 million in dirt bonds backed by the project have been hamstrung because of the unusual structure of the dirt-bond deals.