Denver - Recent refinancings of certificates of participation and plans for more underscore the willingness of Colorado issuers to refund COP debt, but uncertainties surrounding Amendment 1 still stand in the way of new issues, bond attorneys say.
Late last month, Dougherty, Dawkins, Strand & Bigelow Inc. underwrote a Boulder County refinancing of $6.4 million of COPs used to build a jail in 1986. The sale followed a similar refunding for Huerfano County this year. Several larger COP refinancings are planned during the next month, including a $37 million refunding by Aurora set for pricing next week.
Bond attorneys say there is no danger with the COP refundings, but they can't ignore pending litigation involving new-issue COPs. The litigation has Colorado underwriters saying they can't obtain a "clean opinion" for new COP issues. As a result, not one COP has been issued in Colorado since Amendment 1, the 1992 measure that prohibits governments from entering into multiyear fiscal contracts without voter approval.
Although Dougherty Dawkins underwrote a COP refinancing last month, the firm is also a key player in the litigation casting a shadow over the new-issue market.
The lawsuit was filed last year after Dougherty Dawkins refused to underwrite a COP issue for a $250,000 Boulder County snow plow lease. The firm claimed that Amendment 1 prevented the firm from obtaining a clean legal opinion.
Boulder County successfully sued Dougherty Dawkins for refusing to underwrite the issue, but the firm is appealing to the Colorado Court of Appeals.
Russell Caldwell, senior vice president at Dougherty Dawkins and a defendant in the Boulder case, said he appealed to further clarify the COP issue. Caldwell said he and his client understand the purpose of the litigation and remain on good terms.
"We're doing one for the industry here," Caldwell said.
In the meantime, new-issue COPs are stuck until the Boulder case is settled in the Court of Appeals. Caldwell said he would not pursue the case further.
"People are still afraid to do new COPs," said Michael Johnson, bond counsel for Boulder County. "I can't imagine any being done until the Boulder County-Dougherty Dawkins case is decided."
Theoretically, new-issue COPs are legal under Amendment 1 if funds for their repayment are appropriated annually by the issuer, said Daniel C. Lynch, Aurora's bond counsel.
"There's a unanimous view among bond counsel here that Amendment 1 does not stand in the way of annual appropriation issues," Lynch said. However, "it's hard to imagine an opinion not mentioning the Dougherty Dawkins case."
Lynch attributed the absence of new COP issues to a combination of uncertainties of the Dougherty Dawkins case and "all the things that go into the market acceptance as well."
Lynch cautioned against a colloquial referral to COPs as being illegal. COPs are simply a stream of payments set up to fulfill an obligation. It is the lease-purchase agreement that is the issue, he said.
"People are mixing up the concept of a COP and an annually appropriated lease," Lynch said.
In Colorado, both issuers and the bond industry are acutely aware of Amendment 1's author, Doug Bruce, and his supporters, who have sued issuers in several prominent cases. Bruce routinely threatens to file suit against issuers.
Despite the problems with new-issue COPs, both Lynch and Johnson said there are no problems with the refinancings.
"I don't think we were in the position of incurring [Bruce's] wrath," Lynch said. "There's a very clear exception to financing at a lower interest rate."
"We gave a clean opinion in the Boulder County refunding," Johnson said, referring to another county lease issue not involved in the litigation.
The Boulder County bond counsel said the clean opinion was given because the lease purchase agreement is subject annual appropriation and does not create a new multiple-year fiscal obligation, and because the refinancing is at a lower interest rate.
Kevin Pratt, a Colorado Springs lawyer who litigates for Bruce and his followers, said he has not paid any attention to COPs because "we've been frying other fish at the moment." He said he is looking to the Dougherty Dawkins case for clarification.
"The COP is something I haven't focused on yet. It certainly doesn't mean we won't," Pratt said.
Pratt is litigating two potentially pivotal Amendment 1 cases: the Boulder County, city and schools case involving ballot wording, and the Littleton Schools case over the legality of raising mill levies to pay for past bond issues when property values decrease. The Boulder ballot case is set to be heard by the Colorado Supreme Court June 27, while the Littleton case is pending in the Court of Appeals.
Caldwell said even when Dougherty Dawkins clients conform to Amendment 1, the municipal market still balks at doing business on Colorado COPs. One of his clients passed a $15 million COP financing for a jail in a general election, but an insurer refused to bid on the issue because it didn't understand Amendment 1, Caldwell said.