DALLAS -- Investors in five bond-financed Texas jails are pushing to avert a default by the for-profit projects before the last guaranteed debt service payment in February, officials said.
The aim is for Texas to buy or lease the 500-bed jails as quickly as possible. Lawyers representing bondholders and counties involved in the projects -- financed with $74 million of junk municipals in 1989 -- are aggressively negotiating with the state to bring about just that.
"The primary option right now is to attempt to use these facilities to help meet the state's critical needs," said Rick Porter, bond lawyer at McCall, Parkhurst & Horton in Dallas. "The quicker this problem can be resolved, the better it will be for all parties."
Earlier this year, bondholders hired Mr. Porter and Goldman, Sachs & Co. to represent them after contracts to house inmates failed to materialize.
Of the six identical projects, all built in rural Texas and intended to ease jail crowding, only the Angelina County Detention Center, is in use.
Without a quick resolution, bondholders will receive their last guaranteed debt service payment in February. The semiannual payment will exhaust capitalized interest and other reserves that have made payments since the nonrated bonds were sold in October 1989 by now-bankrupt Drexel Burnham Lambert Inc.
"The counties still have enough funds in the reserves to make the February payment," said Barney Knight, a lawyer at Bickerstaff, Heath & Smiley in Austin. The firm represents Pecos County, site of one of the six projects. "There would not be a payment default until August."
Mr. Knight said bondholders may consider taking title to the empty jails, which were the only security for the lease revenue bonds sold by conduit-financing corporations created by the six counties.
"They were working toward some kind of conveyance," he said.
But Mr. Porter said bondholders -- who he said include six institutional investors, which hold $6 billion of Texas municipals, and one small investor -- are not interested in owning the facilities.
"The bondholders are not in the business of operating prisons," he said.
He said talks were continuing with officials of the state Department of Criminal Justice about leasing beds to relieve the crowded prison system or to buy the facilities to convert to drug treatment centers
But wary state officials have said the projects are too debt-laden and remote to be of much use to the state.
Mr. Porter's response: "The state is in critical need of space, and these projects can meet that need."
As an example, he noted that as many as 480 inmates have been transferred to the Angelina County project to relieve crowding in the Harris County jail, near Houston. But even that project faces uncertainty.
Harris County has leased space in Angelina and other counties at a per diem rate of $40 per inmate that is reimbursed by the state. But under a new state directive, the Texas Commission on Jail Standards plans to negotiate a new rate under a policy of only paying her diem charges equal to the actual costs of operating the facilities.
Jack Crump, executive director of the jail commission, said he is negotiating contracts that will pay as little as $35.50 per day for jail beds.
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Also, on Dec. 13, the commission ordered Harris County to double the number of inmates it houses in other jails to 2,000. However, Mr. Crump does not expect that to be good news for the five unused projects.
"Ninety percent of their space is for low-risk inmates," he said. "I honestly believe we're going to run out of a need for that kind of jail space."