The Register-Herald, Beckley, West Virginia

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July 11, 2012

City, county not on hook for MSU bond issues

BECKLEY — Millions of dollars Mountain State University floated in bonds with the assistance of the city of Beckley and the Raleigh County Building Commission impose no liability on either government entity, Beckley Recorder/Treasurer Gary Sutphin emphasized Tuesday.

Questions about the bond indebtedness arose after word came from the Higher Learning Commission that the Beckley school had lost its accreditation.

“Technically, we were nothing but a conduit,” Sutphin said.

“It’s more or less a pass-through bond issue. We’ve been assured by the bond counsel, Steptoe and Johnson (in Charleston), that we have absolutely no liability in this whatsoever.”

Moody’s Investors Service recently disclosed that MSU had some $5.6 million in rated debt through the city and building commission, and that some $11 million of its $16.5 million worth of long-term debt entailed bonds issued through the city to refinance the Beckley school’s debt. Money from that was invested in a 200-bed student housing unit.

Sutphin said he was “99 percent sure” that neither the city nor the county is out one cent for the bonds.

“Bond issues come to us from bond counsel,” the recorder/treasurer said. “They assure us the language is in there that we’re off the hook.”

No one has ever contacted the city “saying you’re the issuer of this bond issue and we want our money back,” he said.

“Nobody has ever called us on that,” Sutphin said. “It is my understanding they (MSU) are current (on the bond payments).

“On these, when you’re dealing with pass-throughs, the bond counsel brings them in, they say, ‘Here it is, you’re a conduit, you’re not liable, would you please pass this for us?’”

Sutphin said the practice isn’t unusual and, in fact, the city has been involved in a few others, including one for Beckley Water Co.

“This is just to be able to use the tax-exempt status of Beckley to help better the community, to make the place a better place to live,” he said.

If any default occurred, Sutphin explained, the money would be on the bank of the lending institution, not the city or county.

“And I’m sure property is tied up with the deed of trust and everything else,” he said.

“Of course, that doesn’t help them if there’s no revenue.”

Sutphin took exception with a recent report published in Charleston that implied the bonds undertaken by MSU were considered “junk.”

“If we were involved, and we have a responsibility, it wouldn’t be junk bonds,” he said.

“And No. 2, nobody has called us and told us we owe any money. It’s because we’ve been told we don’t have to. It’s simply a conduit.”

Raleigh County Administrator John Humphrey, likewise, assured taxpayers they won’t have to pick up the tab, if and when any of the bonds fall into default.

“They’re pass through,” he said.

“There’s no liability ever on a bond like that for the county. If they default, the taxpayers don’t have to pick up the tab.”

In its findings, however, the Higher Learning Commission painted a grim picture of MSU’s finances, saying it has an overall debt of $27 million.

In fact, it said, a bank is holding $10.8 million in cash as security for a $9.7 million promissory note due one year from Sunday because a recently-constructed dormitory is considered insufficient as collateral.

And, the school’s bond rating fell from Baa stable to Baa negative in view of its financial instability.

— E-mail: mannix@register-herald.com

 

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