WASHINGTON -- Hanover County, Va., this week is issuing the first local lease revenue bonds in Virginia since the state Supreme Court withdrew its April decision declaring lease- and appropriation-backed securities unconstitutional.
Harry Frazier of Hunton & Williams, the bond counsel on the $5.7 million issue, said he gave his unqualified approval -- despite lingering questions about what the court could say in its next ruling on lease issues this fall -- largely because the bonds were validated by a lower court on June 27.
In response to the county's request for an opinion validating the bonds under a 1950 judicial validation statute, the Hanover County Circuit Court decreed that, as structured by the county, the bonds were binding and valid, and would not constitute debt requiring voter approval under the state constitution.
The circuit court's ruling was needed to overcome lingering questions from the state Supreme Court's April 19 decision about the constitutionality of lease- and appropriations-backed securities issued without voter approval, Mr. Frazier said.
Even though that ruling was withdrawn on June 4, the high court has agreed to a petition to rehear the case, Dykes v. Northern Virginia Transportation District Commission, and could still uphold some aspects of the April decision, attorneys said.
"Until the court speaks again, I don't think I would feel comfortable doing [local lease issues in Virginia] without a validation" from a lower court, Mr. Frazier said. "With the validation, we think we are okay no matter what the court does," he said.
Mr. Frazier said he is seeking a circuit court ruling to also validate a $20 million local lease offering and said he knows of one other local issuer that may take the same steps to validate its prospective lease offering.
Moody's Investors Service also cited the June 27 circuit court decree as the principal reason it felt "sufficient comfort" to rate the Hanover bonds in the wake of the Supreme Court's actions.
The agency on Friday gave the lease bond issue, for building renovation projects, an A1 rating, while it upgraded the county's general obligation rating to Aa from A1 to "reflect the county's ample taxable resources, a record of sound financial operations and modest debt level" of $75.6 million.
Eric Goldstein, Moody's assistant vice president, said the agency was impressed with the "unusual step" taken by the county to obtain a court ruling proclaiming the validity of the lease bonds. In addition, he noted, the lower court's validation decree was not appealed to the Supreme Court. A similar decree in the Dykes case was appealed.
Mr. Goldstein and Mr. Frazier pointed out that under the state's judicial validation procedures, an unchallenged court decree "shall be forever binding and conclusive as to the validity of the bonds."
Another Virginia attorney, asking to remain anonymous, questioned whether the lower court ruling would stand if the Supreme Court upholds the April decision invalidating lease- and appropriation-backed bonds.