Operator of Texas Prison Where Inmates Rioted Loses Contract

DALLAS – A private prison in Raymondville, Texas, is seeking a new operator after an inmate uprising damaged the $78.5 million bond-financed facility, according to the issuer of the debt.

The Willacy County Local Government Corp., which issued $78.5 million of bonds in 2011 for the Willacy County Detention Center, was informed on March 12 that the Federal Bureau of Prisons was cancelling its contract with Management Training Corp., according to a letter from County Judge Aurelio Guerra, who also serves as president of the LGC.

News of the cancellation came through MTC, according to Guerra.

“The Willacy County Local Government Corporation has not received any official notification or documentation,” Guerra wrote in a letter to the trustee U.S. Bank National Association.

MTC did not respond to The Bond Buyer’s requests for comment.

In a separate letter, Guerra cited a statement from MTC and the Bureau of Prisons that the Feb. 23 uprising that damaged the prison was due to fears from certain inmates that they would be deported to regions of Mexico where they felt unsafe. The 2,000-bed detention center holds undocumented immigrants who have been apprehended in the U.S. for other crimes.

Guerra’s letter contradicted some media reports that the uprising was due to inadequate health care.

“Inmates told investigators the plans to cause significant damage to the housing areas, thus forcing the transfer of inmates, were formulated well in advance of the disturbance,” according to Guerra’s letter. “Inmates were instructed to claim they had received poor medical treatment as a pretext for the disturbance.”

Guerra reported that debris removal has begun at the prison.

“The original design/builder and detention hardware contractors have toured the facility and are in the process of estimating the cost and time to repair the damage,” Guerra said.

MTC has been chosen by bondholders as the replacement operator of another private prison in Livingston, Texas, called the IAH Secure Detention Facility. The current operator, Community Education Centers, had planned to cease operating the facility on Feb. 1, 2015. Under a forbearance agreement, CEC agreed to continue operating the facility until a replacement operator could be found.

The IAH, designed for 528 inmates, was financed with $49 million of bonds issued in 2004 and 2006.

Conduit issuer IAH Public Facilities Corp. is in negotiations with the IRS over whether the unrated bonds issued in 2004 and 2006 qualify as tax-exempt debt. A number of rulings in the past year have gone against privately operated jails in Texas.

The trustee for the IAH bondholders is asking a Minnesota state district court for instructions on its plan to amend its original indenture to allow for new terms on operating the Livingston facility.

According to the trustee, MTC is seeking $400,000 for furnishings for the facility under terms of a new contract.