BRADENTON, Fla. – A bond insurer is taking a big swing at getting back the payouts it made on the defaulted debt that financed a Virginia city's unprofitable golf course, this time in federal court.
At issue is the 18-hole Vista Links, for which the city of Buena Vista and its Public Recreational Facilities Authority issued $9.2 million of lease-revenue bonds insured by ACA Financial Guaranty Corp. in 2005.
City hall, police and court facilities as well as the championship golf course are collateral for the debt, which Buena Vista voted to stop repaying in late 2015.
Buena Vista is home to 6,650 residents near the scenic Blue Ridge Mountains.
ACA is seeking a receiver appointed for the municipal facilities, immediate payment of the debt, and $525,000 in damages in a new
Buena Vista "fraudulently induced" ACA to enter into the transaction by representing that the city had authority to enter the contracts, the lawsuit contends.
When asked about the new legal charges, Buena Vista's attorney, Brian Kearney with Heslep & Kearney PC, said that city officials are still open to settlement negotiations.
"They [city officials] have been willing to sit down at any time to try to resolve this, but ACA refuses to negotiate or discuss this matter," Kearney said Tuesday.
The city has 60 days to file a response to ACA's federal complaint.
"While we are not able to comment on litigation strategy, we have repeatedly worked in the past with the city to try to achieve an acceptable solution, most recently by agreeing to a forbearance agreement which allowed the city to only pay half of its debt for five years," ACA said in a statement. "When the city defaulted on those reduced payments, we had no choice but to file a lawsuit."
The dispute has escalated from ACA's first lawsuit filed in June 2016 in Buena Vista Circuit Court, where the insurer sought a declaratory judgment against the city and the Public Recreational Facilities Authority.
In the circuit court complaint, ACA asked a judge to determine the validity of its agreement with Buena Vista, including bond documents spelling out its authority to foreclose on city hall, the police department, and the golf course.
Last year, ACA attorney Steven Higgs said in an interview that the insurer was not particularly interested in foreclosing on the city's municipal facilities, which were then valued in the "high $2 million range," while the outstanding debt topped $9 million.
The lower court case took a 180-degree turn when court documents filed by the city contended that the bond deal is void because only four of the city's seven council members voted on the bond resolution and related agreements that included selling the city's interest in its "public places."
Virginia's constitution, according to the city's filing, requires all seven council members to be present to vote on a deal that involved backing the golf course's bonds with an interest in facilities owned by the municipality.
ACA then withdrew the state suit to file in federal court.
In ACA's new 30-page federal lawsuit, the insurer said the tainted vote supposedly invalidating the city's deed of trust supporting the bonds and collateral doesn't make sense.
Over the years, ACA said in the suit, the city council adopted a bond resolution and made representations in the deed, the lease, the forbearance agreement and in legal opinions that supported the validity of the council's actions.
"Fundamental principles of equity, waiver, estoppel and good conscience will not allow the city – after receiving the benefits of the bonds and its related transactions – to now disavow the validity of the same city deed of trust that it and its counsel repeatedly acknowledged in writing to be fully valid, binding and enforceable," ACA attorneys said in the Feb. 10 complaint.
The 10-count suit requests a judgment against the city declaring the financing documents to be valid, appointing a receiver, and an order granting ACA the right to foreclose on the city's government complex in addition to compensatory damages.
Several counts seek rulings determining that the city and the authority breached deed and forbearance agreements, as well as an implied covenant of good faith and fair dealing, requiring immediate payment of the outstanding bonds.
"Defendants' false statements and omissions were made recklessly and constituted willful and wanton disregard" for the ACA, the suit said.
Vista Links has never turned a profit for the city and has required general fund subsidies totaling $5.6 million since opening, according to Buena Vista's 2016 comprehensive annual financial report.
The city has said the subsidies took a toll on its budget when the economy soured during the great recession.
In 2010, the city entered a five-year forbearance agreement in which ACA agreed to make bond payments for five years.
In December 2014, the city council voted in its budget not to appropriate the funds to resume payment on the debt in 2015, marking the first default on the golf course bond deal, according to material event notices posted on the Municipal Securities Rulemaking Board's EMMA filing system.
On Feb. 2, a customer bought $10,000 of bonds maturing in 2035 for 99.9 cents on the dollar to yield 5.5%.
In addition to compensatory damages and pre-and post-judgment interest, ACA has asked the federal court to order that Buena Vista pay all of its costs and attorneys' fees.
The insurer also is seeking an order compelling the city to move its courthouse to other facilities and make improvements at the existing courthouse, including bringing it up to standards required by the Americans with Disabilities Act.
Buena Vista isn't the only bond issuer challenging a bond insurer over a troubled local economic development venture.
In Madison County, Miss., the county is appealing the interpretation of a contribution agreement it entered to make up a shortfall in payments on $30.7 million of bonds issued in 2008 by the Parkway East Public Improvement District.
Proceeds of the limited obligation special assessment bonds financed a four-lane divided highway and other infrastructure, but the commercial development planned for the 1,050-acre district never materialized.
After the district could not make debt service payments, Madison County stopped making shortfall payments after two years, forcing the bond insurer, Radian Asset Assurance Inc. at the time, to pay investors in the failed project.
Radian - now Assured Guaranty Corp. – filed suit in the Southern District of Mississippi in 2013 contending that there was no two-year limit on the county's obligation, and alleging that the county interfered politically with the success of the district.
In April, Federal Judge Carlton Reeves ruled that "the contract requires the county to forever make bond payments…as long as the bonds remain outstanding."
Madison County appealed the ruling to the U.S. Court of Appeals for the Fifth Circuit.
Oral arguments in the case are currently set to be heard in New Orleans on April 5.
