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What should elected officials do when a board-appointed authority underwrites $57 million in tax-free, fixed-rate bonds to a private developer who ultimately defaults and files for reorganization and protection from the bondholders through bankruptcy?
Before you start pondering your collection options, consider this. The attorney for the developer has negotiated with the attorney for the bondholders and they want the county commission to allow reissuance of the defaulted bonds, in exchange for $57 million in new tax-free, fixed-rate bonds to buy themselves time to get back into a positive cash flow condition.
We’ll throw in a few tugs at your heartstrings. The bondholders are family members of deceased former residents of a continuing care retirement facility who received the bonds to guarantee refunds of assisted living and long term care costs paid in advance through a contract plan for health care management.
The developer of Glenmoor, a 159-unit independent living community with 30 nursing beds, 15 memory support units, and 15 assisted living units and related common areas located in the World Golf Village area of St. Johns County, is Life Care St. Johns, Inc. The company acquired, constructed and equipped the continuing care retirement facility.
Unfortunately, mortality tables that take into account the average life expectancy of men and women, do not take into account major economic depression like the one that followed only one year after Glenmoor opened. The business plan calculated the number of new residents coming in to cover operating costs; less any refunds for residents who either move or pass away. When intake fell, the operation found that it could no longer cover costs, and failed.
The St. Johns County Industrial Development Authority is a new business incubator with the ability to work in public-private partnerships to encourage investment in the county through certain tax rebates, deferral, or exemption from taxes for a period of time.
It is not the purpose of the Authority to refinance debt, an activity which brings no new business to the county. The Authority sustains itself from discounts earned for packaging new loan agreements for potential commercial and industrial businesses that will bring new jobs into the county. Those fees are not earned on reissuance of bonds; nor are any new jobs created by extending tax-free financing to a debtor in default.
The question being asked by resident taxpayers is why do some private businesses get preferential treatment of their debt while others do not? If a borrower files for bankruptcy, they are automatically in default of their loan agreement with the Authority and the lender funding the debt. If refinancing of existing debt is necessary, taxpayers are asking why the borrower does not have to make those arrangements on their own.
Tags: bankruptcy, bond default, development bonds, refinancing debt
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