A lawsuit filed last month by
The Public Finance Authority was named in the lawsuit because it owns the facilities in question under its little-known asset ownership program.
The PFA, which was created in 2010 under Wisconsin statute and is based there but operates independently of the state, is well known in the muni market as a conduit issuer that finances deals across the country. Under the ownership program, the PFA is also allowed to issue bonds for the acquisition of capital assets. It then hires management companies under long-term contracts to run operations.
The portfolio is remarkably distressed. It houses nine credits, according to an interview with the PFA and a 2023-2024 audit of PFA's core operations. Every credit but one, most financed with unrated bonds, is in default, filings on the Electronic Municipal Market Access website show. Some are embroiled in litigation and others have closed down.
Together, they represent roughly $1.2 billion of outstanding bonds, most of which are tax-exempt, that were issued roughly between 2018 and 2023.
The dismal track record is largely the result of bad advice, Andy Phillips, attorney for the Public Finance Authority, told The Bond Buyer.
"It's incredibly frustrating from our perspective as the PFA, because we rely on others to tell us how the performance is going to work so to have all go into default is very frustrating," Phillips said. "The PFA is relying on the financial professionals to run the numbers, and it's unfortunate where those projects sit."
The asset ownership program exists as an option for projects that have public benefits but do not otherwise qualify for tax-exempt bonds, Phillips said. The board doesn't seek to own assets, but has agreed to do so when borrowers pitch the idea, he said.
"It's a little-known program because the PFA is not advertising it or trying to drum up business," he said. "When you look at all the projects in asset ownership, they are ones the PFA board decided were good, solid, public-benefit projects" that would qualify for tax-exempt financing if the borrower was a 501(c)(3), he said.
"The PFA looks for the sort of partnerships with localities or hospital systems where they're saying, 'We want this project to happen.'"
The PFA often charges higher bond issuance and annual bond administration fees for the program because "there's more work involved," Phillips said.
Walnut Creek, California-based GPM Municipal Advisors serves as the board's municipal advisor. The six-member LLC also doubles as staff to the PFA, according to Phillips. Orrick, Herrington & Sutcliffe LLP is PFA's bond counsel.
Phillips said the PFA does not plan to wind the program down but may use it more rarely. "I would never say no," he said. But "with the concerns that we've seen with a couple of projects, it's not an official position… but it's going to be more rare."
Proton problems
Four of the nine PFA-owned credits are proton cancer treatment centers, a niche part of the healthcare sector often financed with speculative-grade bonds that has
The
PFA's other proton centers include New Jersey-based ProCure Proton Therapy Center, with roughly $146 million of debt; the Florida-based Delray Beach Radiation Therapy Center, with $81.3 million of bonds; and the
The Alabama center
Varian Medical Systems
"You'll find especially on the four proton centers that PFA owns that there are struggles and the reasons behind those struggles are varied, but there's no running from that," Phillips said. "We relied on financial professionals to say whether they're credit worthy or not. The numbers didn't pan out."
Outside of the proton sector, one of PFA's now-shuttered assets was the Minnesota College of Osteopathic Medicine. The authority floated $73.4 million of bonds in 2019 to finance the development of the college in a former elementary school in the small town of Gaylord to be managed by Minnesota Medical University, LLC.
The bonds were initially issued with an investment-grade BBB rating from S&P Global Ratings.
The
In 2021, the PFA floated $179 million of unrated bonds to finance a high-end 245-room resort hotel in Georgia, the McLemore Hotel and Conference Center. The hotel opened in 2024 but failed to generate projected revenues.
The borrower, McLemore Resort Manager LLC, did not make a required bond deposit in April 2025, and the bonds went into default. The trustee
The PFA's only student housing project is a 342-bed project at Nevada State University, which was financed with $38 million of debt, originally issued in 2019 and refinanced in 2022. The project has since seen a series of draws on debt service reserves starting in 2023. The most recent draw came in late 2025 to cover the Nov. 1 debt payment.
Crossroads, the Indiana-based healthcare project at the center of UMB's lawsuit, was financed with $117 million of bonds in 2023. The centers are facing imminent "collapse" if not taken over by a receiver, UMB said in its court filings, which also said the trustee had to draw on reserve funds and the letters of credit to cover debt payments starting in late 2024.
Last week, the PFA filed a brief supporting a receiver, saying that it appears the centers' financial situation "has deteriorated dramatically since" the PFA issued the bonds and acquired the asset in 2023.
Pennsylvania-based Lehigh Valley Health Network, financed with $73 million of bonds in 2023, is the only credit that does not appear to be in default, according to EMMA filings. A chunk of the bonds due in 2052 with a 7.5% coupon traded in March at 103.
Questions for investors
Such a distressed portfolio of bond-financed properties should raise questions for investors, said Lisa Washburn, chief credit officer and managing director at Municipal Market Analytics.
"Conduits, we accept those as being pass-through entities because they don't typically enter into activities that could open them up to potential risk," Washburn said. "In the municipal market, conduits for the most part are assumed to be limited-purpose entities with only ministerial and administrative functions."
With an asset ownership program, she said, "You [now] have a balance sheet, and you're potentially taking on risk on that balance sheet."
In an April 14 MMA report, Washburn said the asset ownership program could "potentially introduce additional credit and bankruptcy-related risks to its bond issues," noting that UMB is seeking compensatory damages, with pre- and post-judgment interest, from the PFA.
"Extra analytical due diligence is warranted for investors holding or purchasing conduit debt issued by WI PFA or other conduit issuers with more than ministerial functions," MMA said. "Pricing decisions should consider the possibility of volatility and spread widening should related litigation and negative headlines surface."
While rare, a few California-based essential housing issuers also own some of their bond-financed credits, Washburn said. Like the PFA, they farm out the management work.
Phillips downplayed any impact that the ownership program may have on its conduit issuances. "It's completely separate," he said. "It's not going to have any impact on any other bond issues that PFA issues."
All credits under the asset ownership program are audited separately from the PFA's core operations, as noted in the PFA
The PFA is run by a board consisting of seven directors. Four are appointed by the Wisconsin Counties Association, which was instrumental in pushing the PFA's authorizing legislation through in 2010. The Wisconsin League of Municipalities, League of Cities and the National Association of Counties appoint one each of the remaining three.
Outside the asset ownership program, the PFA is notable for its high default rate. As of the end of February, the PFA in total carried 45 impaired borrowers, according to MMA, which calls that figure "an all-time high" that translates into $3.5 billion of outstanding par debt.
"Since 2019, Wisconsin PFA has provided 6-10% of annual impairments for the whole market, so 2026 represents an early divergence," MMA said in a Feb. 25 report.
Phillips defended the authority's track record, saying it may have a higher raw number of defaults and impairments due to its deal volume, but its percentage of problematic credits is no different than any other conduit issuer.
"PFA is not the underwriter or the financial advisor, or anything like that," he said. "PFA relies on bond counsel and other finance professionals to determine creditworthiness.
"It's frustrating to see PFA tagged as controversial or risky when that that's not the case," he added. "From PFA's perspective, PFA offers local governments a seat at the development table."
