There is no sugarcoating it: Madison County was body-slammed in federal court today. U.S. District Judge Carlton Reeves ruled that Madison County must pay the bonds for the Parkway East Public Improvement District if the PID defaults. The court stated the county guaranteed the bonds, all $27.7 million of them.
The fiasco began when Parkway East failed to make payments on the bonds and defaulted. Madison County paid the bonds for only two years. The county argued it only had to pay them for two years if it was not reimbursed by the PID per the terms of a contribution agreement between the county and the PID. Madison County officials said the county had not guaranteed the bonds and the taxpayers were protected from paying the remainder of the bond debt to bondholders. The insurer of the bonds, Assurance Guaranty Corp., assumed responsibility for paying the bonds and sought reimbursement from Madison County for past and future payments. The court said sorry, Madison County, you are ultimately responsible for all $27.7 million of Parkway East bonds.
The court stated:
Both sides agree that the contract is not ambiguous and, therefore, that the analysis is limited to the four corners of the contract.
The Court has reviewed the contract again. It sees no reason to deviate from the analysis contained in its prior Order.
The two-year deadline for the District “to reimburse the County is independent of the duration of the County’s duty to make bond payments.” Id. at *4. The contract contains no time limit on the County’s duty to make bond payments. Id. “Nothing precluded the County from seeking to” add such a limit, or perhaps a ceiling of the money it would agree to pay. Id. “But such a limitation is not present.” Id.
In other words, the plain language of the contract requires the County to forever make bond payments on the District’s behalf, as long as the bonds remain outstanding. The alleged “two-year” cap the County has repeatedly sought on its payments comes from a different provision of the contract.1 And the idea that the County’s bond payments were to be temporary, a “line of credit,” or a “bridge loan,” while certainly plausible, was never incorporated into the four corners of the document.
Prior order? JJ reported in June 2015
U.S. District Judge Carleton Reeves denied in April motions for summary judgment filed by Radian Asset Assurance Company and Madison County. Radian insured $27.7 million in bonds sold by the Parkway East Public Improvement District. The district defaulted on the bonds, but Madison County paid $2.033 million to bondholders for the scheduled payments for two years. Radian sued Madison County for reimbursement of the payments it made to bondholders after the county stopped making payments. Madison County claimed it only had to pay the bondholders for two years per a 2005 contribution agreement made between the district and Board of Supervisors. However, Judge Reeves disagreed with the county and ruled there was no limit of two years on the county's liability to the bondholders if the district defaulted on the payments. Earlier post with much more information.Judge Reeves tipped off his intentions in an order he issued a year ago:
The County argues that its duty to cover the District’s bond payments lasts only two years. It derives this length of time from the third part of the contribution agreement, as presented and segmented above.
The two-year limit, however, refers to the amount of time the District has to reimburse the County. It does not apply to the County’s obligation to make bond payments. The first part of the agreement contains no time limit on the County’s obligation to make bond payments...Earlier Parkway East posts
The language of the agreement suggests that the District’s insolvency cannot be a reason for the County to be dissatisfied. The County’s duty to make bond payments is, in fact, triggered by the District’s inability to pay. If the District’s insolvency entitled the County to be dissatisfied, the County’s agreement to make missed bond payments would have no meaning; it would never be reached.
It also would be unusual for a time limit in part three of the agreement to apply by implication to part one, given, among other reasons, the fact that part three opens with the words, “[n]otwithstanding the above.” When this bond deal was being put together, the parties were represented by capable counsel. Nothing precluded the County from seeking to limit, in the first part, any advanced payments for a period of two years. Undoubtedly, there would have been resistance from the other side. But such a limitation is not present. The amount of time the District has to reimburse the County is independent of the duration of the County’s duty to make bond payments.
Court says there is no two-year limit (2015)
S&P downgrades Parkway East bonds
Bond insurer says county misspent $1 million in bond funds
Editorial: Parkway bailouts are not a loan (2012)
Kingfish note: Madison County fell victim to a Bob Montgomery special. The county has repeatedly said taxpayers were protected and that it would only have to make payments for two years. The county will now have to fork out a major amount of dough for the BM special.
Here is one little tidbit of information. Ready for this? Mike Espy was discussing settlement terms with AG. Yup. Several sources told JJ that he had the plaintiffs at the settlement table. The new board of supervisors terminated his employment and did not keep him for this litigation even though a trial was scheduled for this summer.
UPDATE (9:00 PM): The Madison County Board of Supervisors issued this statement: