Irondale, in eastern Jefferson County, last week filed a lawsuit against Trinity Medical Center, which backed out of a deal to build a new 424-bed hospital after the city sold $32.5 million of warrants to pay for incentives it offered to seal the deal.

The four-count suit seeks a trial by jury and alleges breach of contract and fraud, among others charges. The suit also said that the city has spent $20 million of the debt so far on various improvements and if Trinity does not build the hospital, “Irondale will not generate sufficient revenues to pay the debt service on its outstanding general obligation warrants.”

Irondale expects to make its debt payments but the economy is having an impact on city revenues and part of the debt repayment plan was based on revenues that the hospital and ancillary businesses would bring in, city attorney Greg Morris told The Bond Buyer on Tuesday.

“We have $3 million in a reserve account and think we’ll be able to make our obligations for the next year,” Morris said, noting that the city is making budget cuts. “If this lawsuit turns into a protracted lawsuit that takes years to resolve, we may have to readdress this in the future. In the short term, the answer is we’ll be able to make our payment.”

Trinity officials told local newspapers in June that it offered the city a settlement that would have “covered Irondale’s actual expenses incurred to date,” but the deal was rejected. The parties took part in an unsuccessful mediation.

In 2007, the city issued $7.2 million of Series B taxable GO warrants to retire a warrant anticipation note taken out to begin infrastructure improvements on the land where the hospital was to be built.  The city also issued $6 million of Series C taxable GO warrants to bring water and sewer services to the site, and it sold another $19 million of Series D GO warrants to acquire land, build public streets, and make other infrastructure improvements.

“We want Trinity to build the hospital, to honor its commitment,” Morris said. “We started designing roads and we’ve got a water line that goes to nowhere that cost over $1 million to install.”

The city is seeking damages to cover the cost of the improvements and the lost profit of the project plus the funding to unwind the bond issue if that is necessary, Morris said.

The bonds were insured by XL Capital Assurance Inc., now Syncora Guarantee Inc., and received a triple-A rating based on insurance. Syncora now is rated Ca by Moody’s Investors Service and had stopped paying claims.

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