DALLAS - Bryan, Tex., one of four cities that make up the Texas Municipal Power Agency, has filed a flurry of legal challenges to a $1.7 billion refinancing plan, claiming that the TMPA cannot obligate the city to more debt without its approval.
The TMPA's debt for its coal-fired plant near Bryan would be extended from a current maturity date of 2018 to a new maturity in 2030, under a resolution approved by the agency in a 4-to-2 vote on Sept. 11.
The litigation against the three other TMPA cities - Denton, Garland, and Greenville - has blocked plans to begin the refinancing this year with the issuance of $250 million of bonds, using Barclays Capital Inc. as the senior manager and First Southwest Co. as the financial adviser.
Officials at the city's Bryan Texas Utilities say the extension would add $430 million in debt service to the member cities, including about $95 million for Bryan if the interest rates came in at 5%.
TMPA officials say the financial plan is valid and have sought court approval to issue the debt through a bond validation lawsuit filed in Travis County.
Lin Hughes, an attorney for McGinnis, Lochridge & Kilgore LLP in Austin who is representing Bryan, said the issue has never come up in the TMPA's 32-year history. In 1993, the agency's board unanimously authorized extending the debt from 2012 to 2018 to achieve savings. But this refinancing would smooth debt service at the cost of higher interest cost over the life of the bonds.
The only regulations on the issuance of debt by the agency are contained in the cities' individual power contracts with the TMPA, Hughes said.
"This is such an unusual situation," Hughes said. "One of the issues is, does the power sales contract allow three cities to get together and impose debt on a fourth?"
Bryan's position is that such an arrangement would violate the Texas Constitution.
"Before issuing bonds to finance a project, the TMPA must submit a written notice to each member city seeking that city's approval," according to Bryan's court filing, which notes that "each city is allowed to opt out of a project and, if it does, is not liable for the debt service on the bonds issued to finance that project."
The refinancing plan was first approved at a board meeting Sept. 11.
A day after the TMPA board passed the resolution, Bryan filed suit to stop the bond sale. A week later, the agency filed a bond validation suit in Travis County. Texas law allows bond issuers to clear bonds for sale through validation suits that provide quick resolution of pending claims but the process can get bogged down by litigation.
"By statute, a bond validation suit is supposed to move very quickly, but we have several motions before the court," Hughes said. "I would say it's probably going to take a minimum of three months to go to trial. And then it could go up on appeal. It could be a year at minimum before the appeal is filed."
