DALLAS - The Federal Deposit Insurance Corp. has sued a municipal utility district in Trophy Club, Tex., alleging the district owes about $4.8 million to a failed savings and loan for nonpayment of a loan for water, sewer, and drainage renovations. The suit also suggests the MUD issue bonds to repay the debt.
The lawsuit, filed last week in U.S. District Court in Fort Worth, alleges that before the city of Trophy Club was incorporated in 1985, Municipal Utility District No. 2, which still services about 1,576 of the city's 6,800 residents, signed a loan agreement with the now-defunct Gibraltar Savings Association for about $6 million. The proceeds from the loan were spent on water, sewer, and drainage improvements on the periphery of the city. Gibraltar failed in 1988.
District officials met yesterday with the FDIC about possible solutions, including issuing bonds.
"It depends what sort of agreement is worked out," said Trophy Club tax director Jim Buxton. "If the FDIC wants all the money paid immediately, the only way the district could pay it would probably be through a bond issue."
A bond issue would likely raise property taxes about $250 per year per customer, Buxton said, adding that the debt would last about 20 years, based on the MUD's $227 million of taxable property. The average home in Trophy Club costs about $200,000.
"There have been numerous attempts to reach a settlement in this case, which has been ongoing since 1995, but so far, no attempts have been successful," said David Barr, a spokesman for the FDIC. "Although we have filed the lawsuit, we are working toward a court-ordered settlement, so it's possible this won't result in a long, drawn-out lawsuit."
The district has the authority to issue as much as $12 million of bonds subject to the approval of the Texas Natural Resource Conservation Commission. About $4.5 million of general obligation debt is outstanding from a 1995 sale managed by Southwest Securities Inc. Houston-based Page & Harding was bond counsel to that deal, and Moody's Investors Service rated the bonds Baa3.
Buxton said district officials hope to work out a payment plan with the FDIC before selling bonds.
"This first negotiation meeting is really just a fact-finding event," he said. "We have a mediation meeting set up in about a month, and if we can't work out a solution by then, I suppose it could go to a full-blown court case."
According to Paul Rosenberg, assistant to both the town manager and the MUD manager, the district was created in the mid-1970s by then-developer Independent American.
"They started building houses out here when the area was still unincorporated, and started a MUD to handle water and sewer needs and to get a fire station started," he said. "That was Trophy Club Municipal Utility District No. 1 . Then a second MUD was started as the area began to spread out."
Typically, MUDs are abolished when a town or city is incorporated, but because Trophy Club's districts reached into other cities, the city's MUDs have been preserved.
