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Economic Development

Oct. 27 – UPDATED: Savannah Economic Development Authority Responds to Statements by Atty. Mark Tate on Risk to SEDA

Category: Economic Development

By Lou Phelps, Savannah Business Journal

October 27, 2017 – 6:35 p.m. - After a $10 million civil jury decision this week in the State Court of Savannah in favor of a client of The Tate Law Group and Savage, Turner, Pinckney & Savage, Atty. Mark Tate gave a series of interviews to the media about not only the jury’s award, but also his belief that the size of the decision would lead to a possible default by the borrower using bonds issued the Savannah Economic Development Authority (SEDA).  Atty. Tate added that this was particularly a concern in light of the fact that there are two more similar cases coming to trial where he expects multi-million awards, both for additional rapes and a horrible murder at the same SSU housing facility project where SEDA had issued bonds for its construction.    

For attorneys involved in major civil litigation, winning the case is one thing, but the client receive payment after a major verdict in their favor can be quite another.  That includes whether the plaintiff attorney’s get paid.  It’s a fact in legal representation, therefore, that part of the process of pursuing a case, and advising a client, is a clear understanding of who has the ability to pay if the civil case is successful.

Atty. Tate also raised questions about the impact on a bond-issuer if a borrower would potentially default. SEDA issued bonds for two Savannah State University housing projects, for a total of more than $49 million.  The SBJ quoted Atty. Tate verbatim.  (See: “FEATURE: Tate Law Group and Savage, Turner, Pinckney & Savage win $10 mil for rape victim against SSU's Real Estate Foundation; Could SEDA's bonds be downgraded?”  www.SavannahBusinessJournal.com.  October 26 2017.)

And, before running that story on Thursday, Oct. 26, an interview was held by phone with SEDA Chairman Stephen Green, who said that he did not have a statement yet about any possible impact on SEDA because of the SSU bonds, but would be speaking with SEDA’s bond counsel Tom Gray of Gray Pannell & Woodward. 

Responding quickly, SEDA issued the following statement this afternoon, assuring that there will not be a financial impact to SEDA.  Their 1:09 p.m. statement is below. 

But, upon reading the SEDA statement, Atty. Mark Tate responded, “It appears that SEDA missed my point.  It is simply this:  Ventures (SSU Foundation Real Estate Ventures, LLC., the borrower) was poorly managed with regard to security.  The jury verdict exceeds the available insurance.  That fact jeopardizes the assets of Ventures.  Those assets secure bonds obtained through SEDA.  When collateral is jeopardized, the value of the bonds may well be downgraded.  In no way am I attacking SEDA.  The fact is that someone who holds these bonds and has the ability to act should do so to preserve the value of the bonds.  I have not and do not suggest the SEDA is liable to the plaintiffs.  I suggested quite a different fact and that is that I believe there are parties who are, or may be liable to bond holders for any diminution of bond value.  To my knowledge SEDA is well managed and vital to our area’s development.  I want SEDA strong and well regarded.” 

And, since the SBJ pubished its original story on Thursday, a source close to the case states that the insurance carried by the SSU Foundation Real Estate Ventures, LLC. for University Commons is a total of $4 million per incident, versus the $2 million stated by Atty. Tate.  

SEDA’s Statement Friday, Oct. 27, 2017 at 1:09 p.m.

“We have read the article published this morning by Lou Phelps regarding the $10 million judgment against the SSU Foundation Real Estate Ventures, LLC.  The quotes from Attorney Mark Tate about the Savannah Economic Development Authority and the news reported in the story about SEDA are false and inaccurate. 

“In 2008, SEDA was the issuer of two series of bonds for the benefit of Savannah State University, one of which was for the construction of University Village (the “Series 2008A Bonds”).  As in all bond issues where SEDA acts as the issuer, SEDA has no financial obligation for the repayment of the debt and SEDA is purely a conduit issuer for the transaction.  The SSU Foundation through a letter of credit agreement with Wells Fargo Bank (originally Wachovia Bank) is obligated to repay the Series 2008A Bonds.

”It is stated in the offering document that was used to sell the Series 2008A Bonds, that the “BONDS, INCLUDING INTEREST AND PREMIUM… SHALL NEVER CONSTITUTE AN INDEBTEDNESS OF THE AUTHORITY WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION AND SHALL NEVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE AUTHORITY.”

Furthermore, in the form of Series 2008A Bonds that were issued at closing (and were reissued in 2016) it is stated that “The Series 2008A Bonds shall never constitute a debt or liability of the Issuer… and shall not constitute a pledge of the faith and credit of the Issuer… within the meaning of any State constitutional provision or statutory limitation and shall not constitute a pledge of the faith and credit of the Issuer… The Issuer has no taxing power.”

Mr. Tate alleges that this verdict “affects the entire economic viability of SEDA and our entire economic corridor, because of their mismanagement.”  This statement is completely false.  SEDA has no financial obligation for the repayment of the bonds, and has no effect on SEDA’s finances or future operations.

The next statement in Ms. Phelps article stating that Mr. Tate “is concerned that the downgrading of SEDA bonds would affect the development authority’s ability to issue bonds in the future” is also completely false.  SEDA does not have its own stand-alone credit rating.  SEDA has never issued any bonds that are to be repaid directly by SEDA.  In all of SEDA’s prior bond issues, it has acted as a conduit on behalf of another entity that is the borrower.

Mr. Tate’s next quote that “Moody’s will downgrade the SEDA bond issue affecting bonding capabilities of SEDA to issue bond in the future” is factually inaccurate and false.  Moody’s did in fact assign a credit rating on the Series 2008A Bonds based upon the letter of credit provider (Wells Fargo) and the ability for the SSU Foundation through an agreement with the Board of Regents to repay the obligation.  Again, SEDA is not financially liable for the repayment of the Series 2008A Bonds and if Moody’s downgrades the Series 2008A Bonds, such downgrade could affect SSU Foundation’s ability to borrow in the future, but such downgrade would have no effect on SEDA or its ability to issue bonds in the future.

Finally, Mr. Tate’s allegation that “SEDA is mandated to act against the defense lawyer’s firm and the insurance company for not acting appropriately” is also completely false.  In the bond financing documents, SEDA has been indemnified by the SSU Foundation “against any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project or the use thereof.” 

We are recommending that Ms. Phelps immediately run a correction to her article to set the record straight on SEDA’s involvement with SSU Foundation and make it clear to her readers that the verdict has no effect on SEDA, its finances or its operations.”

The statement is signed by Hugh “Trip” Tollison, Thomas S. Gray, Jr. and Jonathan B. Pannell

Atty. Tate states that he is pointing out that SEDA appears to not addressing the points he has made on the impact on an issuing party when bonds it has issued default. 

How bonds are value, and the credit rating of bonding parties, such as a City, a County or a Development Authority, is complicated. 

 A Primer on Understanding Bonds Issued by Economic Development Authorities

“A bond is a loan that the bond purchaser, or bondholder, makes to the bond issuer. Governments, corporations and municipalities issue bonds when they need capital. An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money. Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as maturity,” explains PIMCO Investments, a leading fixed income investment manager in the U.S., on their website.

“Every bond also carries some risk that the issuer will “default,” or fail to fully repay the loan. Independent credit rating services assess the default risk, or credit risk, of bond issuers and publish credit ratings that not only help investors evaluate risk, but also help determine the interest rates on individual bonds,” states PIMCO.  An issuer (such as SEDA) with a high credit rating will pay a lower interest rate than one with a low credit rating, PIMCO states.    

Atty. Tate has raised the point that if SEDA issues bonds to parties which default, it can reflect back on SEDA’s future bond issues, including the profit that SEDA might realize through selling the bonds.   

But SEDA disagrees, and they have now added the following statement:  “As previously stated by SEDA and its attorney, there would be no affect whatsoever on SEDA’s ability to issue future bonds.”

For the complete PIMCO ‘primer’ on understanding bonds, see:   https://www.pimco.com/en-us/resources/education/everything-you-need-to-know-about-bonds/

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