BATON ROUGE, La. – A state appeals court ruled the Louisiana State Market Commission owes ailing Texans CU $3.4 million it guaranteed on a defaulted loan the Texas credit union giant made to a defunct Cypress tree lumber mill.
The state appellate court ruled that Texans, which has been saddled with tens of millions of dollars in bad member business loans, had validly obtained a guarantee on the MBL from the state commission, a position that officials with the panel had denied.
Texans, under NCUA conservatorship since April 15, was seeking to enforce its rights against Cypress, which had borrowed $3.15 million in June of 2007. The Texans loan was a refinancing of an existing loan made to Cypress from Capital One Bank (formerly known as Hibernia National Bank). The Capital One loan was secured by all of Cypress’ immovable and movable property, guarantees by two of Cypress’ members and a guarantee by the State Market Commission.
Before the loan from Texans was approved, the credit union received a copy of a written legal opinion from the Commission’s general counsel, stating that the State Market Commission guarantee was authorized, was legal, and did not require the approval of any other governmental body.
After Cypress failed to make scheduled principal and interest payments to Texans in June 2009, the credit union demanded that Cypress and the State Market Commission honor their obligations under the loan and the guarantee. The State Market Commission rejected the demand, contending that the guarantee was unenforceable because it had not been approved by the Louisiana State Bond Commission.
Texans asserted that it had reasonably relied upon the Department's general counsel's legal opinion in agreeing to make the loan and to accept the guarantee as collateral. In its answer, the Department and the Agricultural Finance Authority asserted that the State Market Commission was required to obtain the approval of the State Bond Commission prior to guaranteeing the debts of others; thus, the State Market Commission guarantee was void and unenforceable, and contrary to public policy.
The appeals court rejected the state’s position and ruled that Texans had obtained a valid guarantee on the loan.
The one-time $2 billion credit union is one of the nation’s biggest providers of member business loans. It was burned by commercial bankruptcies and defaults of several multi-million dollar MBLs. Some of those MBLs are expected to spread red ink to other credit unions who bought participation pieces from the credit union’s wholly owned MBL CUSO, Credit Union Liquidity Services LLC.
Troubled MBLs made by Texans’ CUSO including a $36 million loan for a real estate development in San Antonio, a $45 million MBL to an ill-fated mall redevelopment outside of Chicago, and a $30 million MBL for a mixed-used development in Rockwall, Texas. All three of those MBLs are the subject of litigation.
Texans, which lost $125 million from 2008 through 2010, lost another $11.4 million in the first quarter of 2011, when its net worth ratio slid all the way to 1.95%, precipitating the NCUA takeover.
