DALLAS - McLennan County in Central Texas expects savings of almost $8.7 million through refunding $49 million of taxable bonds used to build a privately operated jail, officials said.
The deal is scheduled to price this week through negotiation with Raymond James as book runner and Wells Fargo Securities as co-manager. Mark McLiney, senior vice president of Southwest Securities is financial advisor.
The original bonds issued in 2009 and maturing in 2035 earned a yield of 6.624%, according to county Auditor Stan Chambers. The refunding is expected to bring that rate down to 4.779%, Chambers said.
Standard & Poor's has rated the bonds AA-minus, despite repeated caveats in the preliminary official statement that the county is under no commitment to pay debt service in the event project revenues fall short.
"The bondholders assume the payment risk in the event there are insufficient project revenues, and, in particular, county project revenues," the POS declares. "The failure of the county to pay the rental payments and other amounts due under the sublease would materially impair the issuer's ability to continue to pay principal and interest on the bonds when due.
"The only recourse against the issuer, other than from project revenues, will be the issuer's interest in the project, pledged under the deed of trust, and the resulting ability to take possession of the project upon default," the POS notes. "In such event, the revenues derived from leasing or selling the project may be substantially less than the principal and interest due with respect to the bonds."
Those warnings notwithstanding, Standard & Poor's views McLennan County's obligation as a general appropriation pledge of county revenues.
"The rating reflects our view of the general creditworthiness McLennan County and the provisions of the lease and sublease agreements, including annual appropriation risks," lead analyst Ann Richardson wrote.
The 816-bed jail built with the 2009 bonds is known as the Jack Harwell Detention Center.
The original operator of the jail, Community Education Centers, Inc., was replaced in May 2013 by LaSalle Corrections Corp after a dispute over per diems.
Under the three-year contract with LaSalle, the county agrees to provide an average of 325 inmates per day to the Jack Harwell Center, representing an overflow from the county's other jail. If the county drops below that number, it would owe LaSalle $45.50 per inmate per day for each inmate
LaSalle has agreed to take federal prisoners to offset that ratio. The federal government pays $7 to $10 more per prisoner than the county, officials said.
