…COUNTY’S CHIEF EXECUTIVE?
As you know, the Wildomar City Council recently agreed to facilitate a $15,000,000 bond issuance (“Conduit Financing”) through the California Municipal Finance Authority (“CMFA”), on behalf of Sycamore Academy, publicly stating that there is no potential legal exposure to the City of Wildomar, in doing so.
In a report to the entire Los Angeles County Board of Supervisors, the Chief Executive Officer for the County of Los Angeles, dated May 27, 2008, regarding Conduit Financing Policy, the following notable quotes:
1) “We understand that borrowers may prefer dealing with a CMFA… due to less stringent credit enhancement requirements… However, with a risk management perspective, we believe it is the County’s best interest to work with borrowers through existing financing entities, which will give County more protection.”
2) “In addition, existing County policy requires that the bonds be further secured by a letter of credit, bond insurance, or some other type of credit enhancement. “
3) “Unlike the financing authorities administered by the county and the state CMFA.” is a shell entity “administered by a private contractor..”
4) “The County will not approve the financing through a “non-state” JPA (such as CMFA) …, unless the borrower obtains credit enhancement. “
5) “All of the County conduit financing policies and procedures are intended to protect the County and your Board from potential liability.”
6) “In the last five years there has also been an evolution in securities litigation, with the trend in… the federal courts for extending potential liabilities against third parties who participate in failed bond issues… This trend increases the risk that the County could become involved in litigation.. simply by having approved an issuance of bonds by CMFA, if the borrower is unable to meet its debt service obligations. “
7) “The increased risk of County involvement in litigation following a borrower’s default makes the County’s policy requiring credit enhancement all the more important .”
8) “In light of the heightened risk, the County should also obtain an opinion of disclosure counsel with respect to the accuracy of statements made to investors.”
Comments can be made to firstname.lastname@example.org.
Despite their brave pronouncements, the City of Wildomar appears to be in error regarding potential liability.
Please click on the following link to read the entire six page report (doing your own due diligence), as follows: