DALLAS — Bondholders for a failed private jail would recover about 55 cents on the dollar under a proposed sale to Burnet County, Texas, which currently operates the facility, according to a
The Burnet County Detention Center, financed with $35.4 million of revenue bonds in 2008 would be sold by the bondholders for $14.9 million, according to the agreement signed by County Judge James Oakley, Burnet County Public Facility Corp. president James Fletcher and trustee Keith R. Marshall, vice president of the U.S. Bank National Association.
The sale is expected to close by July 1, according to the county.
The jail remains open under a second forbearance agreement that would end when the facility is sold. The county would acquire $850,000 of the $4.2 million of trust funds now held by the trustee.
The current outstanding debt for the 587-bed jail is $32.77 million, according to the disclosure.
On April 1, 2014 Burnet County took over operation of the jail after Southwestern Corrections ended its contract, citing cash flow shortages and operating losses.
"In light of the continuing cash flow deficiencies, the existing events of default are not likely to ever be cured and the project is unlikely to generate sufficient project revenues to repay the bonds in full," according to the county's resolution to buy the jail.
The loss of private operators has also occurred at for-profit detention centers in Maverick, LaSalle and Willacy counties over the past six months.
Those counties were also forced to take over operations of the detention centers at the expense of local taxpayers. The private lockups were pitched as revenue generators and job providers that posed no risk to the county taxpayers.
Burnet County leaders and the PFC sought another operator, but negotiations fell apart, according to local news reports.
The original tax-exemption opinion was written by the law firm of Hunton & Williams, the bond counsel for the issuer, a conduit created and managed by Burnet County.
Oakley said he hopes the county can generate positive revenue from the facility with inmates from other counties.
Burnet County inmates usually only take up 30% of the beds at the facility that is identified as the Burnet County Jail.
Opponents of the jail warned the county of the risks of building a jail larger than its needs when the facility was under consideration in 2007.
Herbert J. Sims & Co. and Municipal Capital Markets Group Inc. were underwriters for the unrated bonds.
The facility defaulted on its debt in 2011 and has missed several debt payments since.
As the trustee was negotiating a forbearance agreement on behalf of 70% of the bondholders, the Internal Revenue Service was also investigating the tax-exempt status of the original debt.
In February, the IRS announced it would not revoke the tax exemption.
