Due Diligence In….


As a follow-up to a recent article, I expended a total of five minutes on the Internet to find that the Los Angeles County Board of Supervisors were confronted by a similar California Municipal Finance Authority (“CMFA”) proposal back in February 2008.

Please click on the link to the Los Angeles County Board of Supervisors staff report, dated February 12, 2008, for context:

Click to access 36801.pdf

Unlike the City of Wildomar, who has put this issue on the consent calendar apparently hoping that no one would notice, the LA County Board of Supervisors staff identified reasonable financial risks and made the following recommendations:

1) First, find a determination of public benefit for sponsoring the bond. (It would be important for the Wildomar City Council to publicly discuss the benefits of sponsoring a $15,000,000 bond on behalf of a charter school.).

2) The borrower must obtain a form of “credit enhancement”  to help protect the City of Wildomar against any liability  as a result of  default  by the borrower in the payment of debt service.  (This requirement to obtain credit enhancement may be satisfied either  through municipal bond insurance  or a bank-issued letter of credit.)

Again, putting this on the consent calendar appears to be a means to avoid discussing  relevant questions about the  propriety of the City of Wildomar “fronting”  a bond issue for the  Sycamore Academy.

‘In an earlier section entitled FISCAL IMPACT/FINANCING , the Los Angeles County Board of Supervisor staff report discussed  the potential risk in approving such a bond, as follows:

1)”There is a potential risk  to the sponsor  for this type of transaction should any borrower default on its bond payments.”

2)” A lawsuit could be brought by a bond holder against all the parties involved with the bond transaction, including the “sponsor ,” alleging securities fraud.”

Comments can be made to zakturango@excite.com.

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