A Rhode Island Superior Court judge on Wednesday will hear a petition by bondholders to oppose receivership for Wyatt Detention Center in Central Falls.
In a motion filed earlier this month by U.S, Bank NA, the successor indenture trustee, bondholder counsel Partridge Snow & Hahn LLP of Providence, R.I., and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC of Boston maintain that distressed Central Falls, which exited Chapter 9 bankruptcy in September 2012, is using receivership to cram down on lenders by making them subordinate and essentially force a sale of its assets.
A sale, according to bondholders, could enable the city to convert Wyatt from a tax-exempt facility to a tax paying facility, and benefit through local impact fees at bondholder expense.
"A receivership cannot be used to divert monies to the city of Central Falls," the court filing said.
Wyatt owes $97.3 million in principal and $3.2 million in interest on $106.4 million of bonds the Central Falls Detention Facility Corp., as the quasi-public entity is formally known, sold in 2005 to refinance existing bond debt and finance an expansion project. The jail, which sits along the Blackstone River near the Massachusetts border, had been housing federal detainees.
In December 2008, however, U.S. Immigration and Customs Enforcement removed all its 153 prisoners from Wyatt after Chinese national Hiu Lui Ng died while in custody. The loss of federal revenue triggered a cash-flow shortfall.
Last month, prison lawyers told Superior Court Judge Michael Silverstein that Wyatt can't make its $4.4 million debt-service payment due in July. The judge, at the request of city and prison officials, appointed attorney Jonathan Savage as a temporary receiver.
Savage was the first of three state-appointed receivers for the city. Rhode Island returned local control to Central Falls shortly after its bankruptcy, which former councilman James Diossa elected to a full term in January.
"I fully support the board's decision to file for receivership," Diossa said in a statement to WPRI.com in June. "Unfortunately, due to previous mismanagement and mounting debt, the Wyatt has broken their commitment to the city. The residents of Central Falls, struggling with annual court ordered tax increases as part of our exit from bankruptcy, deserve to benefit from our host arrangement with the Wyatt."
One-square-mile Central Falls, with a 19,000 population, reported an $80 million unfunded pension liability when it filed under Chapter 9 on Aug. 1, 2011. While in bankruptcy, it slashed police and fire retiree benefits by up to 55%. The state legislature last month approved funds that restore them to 75% level.