Trustee for Central Falls, R.I., Jail Bonds Draws on Reserve Fund

The trustee for the Central Falls Detention Facility Corp. has made another unscheduled draw on the reserve fund to pay debt related to bonds already in default at the financially troubled Wyatt Detention Center in Central Falls, R.I., according to a securities filing.

The agency issued about $106 million of unrated bonds in 2005 with a 7.25% coupon and a 2035 maturity to fund expansion at Wyatt. The facility issued $30 million of bonds to open the facility in 1993.

U.S. Bank withdrew nearly $1.2 million from the reserve fund on Monday, it said in a notice on the Municipal Securities Rulemaking Board's EMMA website. The remaining balance is $5.3 million, well short of the $8.8 million required balance, according to Wednesday's notice.

The bank has scheduled a bondholder call for 3 p.m. Aug. 1.

This marks a reserve draw for the third straight year, according to the notice.

"If the corporation fails to replenish the reserve fund to the reserve fund requirement on or before Sept. 13, 2013, an additional event of default will have occurred," U.S. Bank said.

Rhode Island's General Assembly created the nonprofit Central Falls Detention Facility Corp. in 1991 to operate Wyatt through an agreement with the U.S. Marshals Service and the city. It opened two years later.

Officials touted it as an economic development project for struggling Central Falls. Marshals Service payments for housing immigration prisoners were to repay the bonds issued to build and expand Wyatt.

But Wyatt revenue plummeted sharply after the federal government canceled the immigration contract when a Chinese national died in custody in 2008. The revenue loss further aggravated the financial problems for Central Falls, whose unfunded pension liability was soaring up to $80 million.

"The loss of this fee revenue has contributed to the city's financial difficulties, which have been exacerbated by the city's inability to appropriately budget for and adjust its spending to reflect this loss," the city's former state-appointed receiver, Mark Pfeiffer, wrote in a report in December 2010.

Central Falls filed for bankruptcy protection in August 2011 and exited Chapter 9 a year later. Moody's Investors Service late Thursday upgraded the city's general obligation bond rating to B1 from B2 and maintained a positive outlook.

Last month, Wyatt's board fired a prison official for allegedly mishandling evidence, according to new chairman Brendan Doherty.

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