South Texas Jail Defaults as Operator Departs

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DALLAS — LaSalle County, Texas, has taken over a bond-financed jail that was left vacant by its private operator, according to a disclosure notice filed on the Municipal Securities Rulemaking Board's Emma Web site.

U.S. Bank National Association, trustee for the holders of nearly $23 million of bonds issued in 2010, sent a notice of default to the county and its conduit issuer of the bonds, the LaSalle County Public Facilities Detention Corp.

The LaSalle County Commissioners act as the board for the PFC. The board, led by County Judge Joel Rodriguez, has scheduled a meeting March 5 to consider repairs to the jail and to pursue a forbearance agreement on debt payments.

Rodriguez said the Emerald Correctional Management, the for-profit operator of the jail, has left the facility vacant.

The county is looking for a new operator or considering operating the jail itself, according to the notice.

The deadline for preventing an official default is March 5, according to the notice.

"At this time it is unclear whether the efforts from the county to either secure a new operator or reopen the facility will be successful," the notice said.

U.S. Bank N.A. has not received sufficient revenue to make lease payments for January or February, according to the notice.

"It is not anticipated that project revenues will be sufficient to make the rental payments going forward unless and until the necessary repairs are completed and the project is reopened and re-populated with inmates," the notice said.

A bondholder owning more than 66% of the outstanding debt has directed the trustee to withhold $1.14 million from the March sinking fund payment to use for the repairs, according to the notice.

The majority bondholder has also told the trustee to rescind a notice of partial mandatory redemption dated Jan. 30.  However, the trustee said it still intends to make the semi-annual interest payment of $829,262 due March 1.

U.S. Bank N.A. served notice that it must be reimbursed for payment of fees and costs it has incurred before any funds are distributed to the bondholders.

The unrated bonds were issued in 2010 refunded debt used to finance construction of the jail in 2002. The 2010 bonds came in two series. An $11.8 million taxable tranche maturing in 2020 carried an interest rate of 9.5%. An $11.1 million tax-exempt tranche maturing in 2024 bore a 7.5% interest rate.

Located in Encinal, Texas, the detention center opened in 2004 and housed male and female pretrial detainees with a capacity of 566 beds. Like many of the for-profit facilities near the Texas-Mexico border, the LaSalle County detention center held inmates for the United States Marshal Service and Immigration and Customs Enforcement.

In a Dec. 11 notice, the trustee reported that inmate population had been declining and were "at or near all-time lows" when Emerald closed the facility for repairs.

"The operator chose to empty the project of inmates, which in its estimation will allow repairs to be made more efficiently. The Trustee was not consulted regarding the decision to depopulate the Project."

In December, Emerald told the trustee that repairs could be completed by February or March, according to the notice.

Rodriguez, who now heads the board that issued the original debt for the jail, was an opponent of issuing the bonds in 2002 when he was county treasurer.  Rodriguez's opposition prompted lawsuits from promoters of the bonds, including Emerald, underwriters Municipal Capital Markets Group Inc., Herbert J. Sims & Co., and the architectural firm Corplan Inc.

One lawsuit, filed in the LaSalle County seat of Cotulla in 2003 claimed the plaintiffs had suffered "inestimable damages to their reputations" from publicity generated by Rodriguez.

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