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KERR COUNTY COMMISSIONERS COURT
Special Session
Wednesday, December 8, 2004
3:00 p.m.
Commissioners' Courtroom
Kerr County Courthouse
Kerrville, Texas
ELI
J
PRESENT: PAT TINLEY, Kerr County Judge
H.A. "BUSTER" BALDWIN, Commissioner Pct. 1
WILLIAM "BILL" WILLIAMS, Commissioner Pct. 2
JONATHAN LETZ, Commissioner Pct. 3
DAVE NICHOLSON, Commissioner Pct. 4
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I N D E X
December 8, 2004
1.1 Consider and discuss extension of temporary
Lease and Operating Agreement at Juvenile
Detention Facility
1.2 Consider, discuss, and take appropriate action
with respect to acquisition of Kerr County
Juvenile Detention Facility
--- Adjourned
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On Wednesday, December 8, 2004, at 3:00 p.m., a special
meeting of the Kerr County Commissioners Court was held in the
Commissioners' Courtroom, Kerr County Courthouse, Kerrville,
Texas, and the following proceedings were had in open court:
P R O C E E D I N G S
JUDGE TINLEY: Let me call to order the
special meeting of the Kerr County Commissioners Court
scheduled for this date and time, Wednesday, December the
8th, 2004, at 3 p.m. We have two items on the agenda today,
and I'm going to call them both, since they kind of run
together. First item is consider and discuss extension of
temporary lease and operating agreement at Juvenile
Detention Facility, and secondly, consider, discuss, and
take appropriate action with respect to acquisition of Kerr
County Juvenile Detention Facility. When we last met
concerning this subject, the -- there were a couple of the
bondholders that had indicated that they needed some time in
order to properly respond to the offer that was on the table
from this Court, and they were advised that we would
schedule a meeting for this date and time to give them that
opportunity. So, at this point in time, unless one of you
gentlemen have something preliminary, I think it would be
appropriate for me to ask that the representative of the
bondholders give us the response.
MR. BRISTOW: Thank you, Judge. Let me start
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off, if the Court will indulge me to give you a little bit
of background about who I am and how I got in this box.
The -- I generally -- generally speaking, I'm here in front
of Commissioners Court representing their interests. That's
a big part of my practice, is representing county
governments, and I say that only by way of background so
that you can kind of understand where I'm coming from, from
the point of view of trying to solve the problem. I got a
call six days ago, maybe seven days ago, from a group of
bondholders who, you know, had either the -- the good sense
or the -- or the misfortune of getting into this bond
transaction, and they were scratching their heads trying to
figure out what it is they needed to do, and needed to --
obviously needed somebody or some way to pull themselves
together, because -- because there's 11 of them. They're in
different banks scattered across the country, and they got
me on the telephone and asked me what I could do to help in
this transaction.
The -- it became obvious to me fairly --
fairly quick that -- that this is a problem that is going to
be difficult. It's going to be hard to solve. But that the
way to solve it was to get as many of the people involved in
the deal rowing in the same direction; get as many of the
people that were involved in the deal educated quickly, so
that they could give a timely response to a very serious
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concern that the Commissioners Court had put on the table,
and that is to get some resolution to this problem in a
timely manner so that -- that the County can -- can make
decisions about what they're going to do about their
juvenile justice program, about what they're going to do
with their facility.
Obviously, this was having an impact on
budget. You know, I have a keen understanding of that, not
only from my background, but from having lived with this
transaction, trying to dissect it, understand it, analyze
it, break it down, figure out what it would take to get
these people to stop pointing fingers at other people, which
is -- you know, it's what lawyers do sometimes. But in --
in this situation, I felt like, with a -- with a sincere
effort by all the parties to focus primarily on the solution
to this problem, and do it without pointing fingers, and do
it with the idea that there is a solution to it, that if
everybody would get on board, that we'd be able to figure
out a way to solve the problem. I have spent hours on the
phone talking to the trustee, the trustee's counsel, the
representatives from First Southwest, who were the
underwriters, their lawyers.
I've talked to your lawyers, talked to the
people at Dain Rauscher. I've talked to all the bondholders
several times, and last night I was pushing the bondholders
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with all that -- just this body of information that I'll be
glad to discuss. If the Court wants to engage in that
discussion, I'll be glad to openly discuss all the pros and
cons and values and evaluations, and -- and pro formas and
details about the operations of these facilities, and be
glad to give my view of where it is. But the bottom line
is -- is that I came to the conclusion that this
Commissioners Court wanted an answer, they wanted it now,
and I undertook to try to get these 11 cats all herded and
going in the same direction. I don't mean that to disparage
the bondholders, but they -- you know, they have -- they
have different views. Some of them are holding these things
in a fiduciary capacity for trusts. Some of them are
holding them for their own benefit. Some of them bought
them from different people, and they all have different
ideas, and they're all very smart, intelligent bankers, and
they -- you know, they want to solve the problem, but they
all have their own ideas on how it ought to be solved.
The bottom line is -- is that, as I said,
I -- I could sense that this Commissioners Court wanted an
answer, they want it now. They want to know that this
problem can be solved, and if it can't, then they need to
make other decisions, and I'm -- I'm sensitive to that. The
proposal, as it was pitched to me -- and I -- I mean, I've
got a little notebook I've built here, but I haven't seen
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all the documents. But, you know, I've put together, you
know, a lot of detention financing issues. I have taken
apart several of them, representing counties and other
parties, and, you know, I generally have that -- that body
of knowledge so that I can hopefully drive this thing in the
right direction.
The other piece of the puzzle that -- that --
that I think is important is for all of us to understand
the -- the unique nature of juvenile detention. You know,
I -- again, either misfortune or good luck, I have been
involved with the juvenile detention attempt to privatize
the juvenile detention facilities across the state in the
mid to late 90's. I'm familiar with the movement that --
where Recor came in and built several of these facilities
that had to be redone. I've seen good juvenile facilities.
I've dealt with juvenile boards from various counties
dealing with, where do we send our kids? I know that Kerr
County, not too long ago, was one of the top three
facilities in this state, and -- and counties saw Kerr
County as the place to send their juveniles, so I kind of
know that this can be a good facility.
And -- and, you know, bottom line is, the --
the bricks and mortar out there in that building really
aren't the determining factor. The determining factor of
that facility is operations and -- and how the programs are
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run, and how other people who send their juveniles to this
facility feel about it, and whether they're willing to send
their kids here and pay a per diem. All that is obviously
very important in coming to the decision that these
bondholders had to come to, and that is they have to make a
business decision as fiduciaries as to what is the
appropriate value for that facility. Again, not to bother
you with the details, but what -- what we did was, I
immediately called people that I -- I knew and that they
knew that are in the private sector that operate detention
facilities. I contacted the folks in Montgomery County and
the folks in Williamson County who run facilities similar to
this and have very successful programs.
I looked at their -- their costs in general
terms and tried to get myself in a position so that -- I was
really hoping to have a formal analysis, but just didn't --
simply did not have time to -- to pull that together. But I
did get a lot of opinions from a lot of different people
about how many juveniles are there out there? How full can
it stay? What kind of operational costs should they run
into? Because that's important in determining the value.
If we look at the way you value things -- and these
gentlemen are trying to answer to their superiors as to why
they would take a particular value for an asset. You look
at what it costs you, and you know that's a $5 million
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ticket. You got $2.7 million in new construction out there
that hasn't even effectively been opened yet. So, you look
at that side of it, you look at the cost side of it, you
look at the market value. What would somebody else pay?
Well, there's not -- there's not much of a
market for used juvenile detention facilities. I mean, the
County is the highest and best possible user. And I
understand and -- and concur with the County's decision to
look at it from the point of view of cash flow. And -- you
know, I know that's what makes -- it may not make sense to
us, as the bondholders, because we look at it, and we just
paid $5 million for this -- something, and now you're
telling us it's -- it's only worth $1.75 million, and that's
a hard -- that's a hard pill to swallow. So -- but I do
understand what -- what cash flow means, and what it takes
to run these facilities. I believe that bottom line is --
is that this -- this facility will work. The bondholders
want to cooperate with the County. They want to do
everything that they can, within their power, to make this
facility work for the County. There is no desire whatsoever
to be adversarial with the County. The -- the view at this
point in time is that they are very appreciative of the
County's taking the -- the initiative and making an offer so
that -- you know, and basically pressing them into action to
respond.
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Judge, I can probably talk for hours, and I'm
not going to, but I -- I'd probably defer back to the Court,
and if you or any of the Commissioners want to have a
discussion or ask me questions, I mean, I'll be glad to go
into any side of this thing, any kind of analysis that I've
done on their behalf that may help you in your
decision-making process. But the bottom line is -- and I
think this is what the -- the Commissioners Court wants to
hear -- is that -- that, after consulting with and trying to
figure out how many people I really had to get on board to
make this thing happen -- you have to realize that -- that
we have a trustee. We have 11 bondholders. They have
lawyers. We have other parties who may or may not have
responsibility for the situation being what it is today, and
I've had to deal with and approach those folks, and -- and
while some of them don't have the power or the right to
consent to what our offer is, it certainly is a part of --
of the puzzle.
So, I've had to go -- talked to First
Southwest about what we're going to do. I've had to get the
11 bondholders, who have very different opinions and are all
in very different positions, to bless an offer. But they
were able to -- last night, to reach a consensus on where
they wanted to go with this thing, and have authorized me to
make an offer to the County, with the idea and understanding
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that we know it's going to take some work and we're going to
have to roll our sleeves up and make it happen, but given
where we are now and -- and the speed with which we have to
move, the bondholders are in a position -- and if the Court
will indulge me, probably the best thing for me to do is
just read it point by point, and then ...
First of all, the bondholders asked me to --
to acknowledge their appreciation for your -- for your
offer. They have agreed to, essentially, the terms. As I
understood them, they -- they've agreed to them. They've
got a few little tweaks in terms, with the exception of the
price. First of all, the bondholders will agree that, upon
closing of the sale transaction, that the -- that documents
will be presented for the release of any obligation of the
County or its public officials arising from the bond
transaction, provided that the County will likewise agree to
take reasonable steps to reserve the rights of the
bondholders to pursue any claims they might have against
third parties, including a covenant of cooperation in good
faith from the County to reasonably assist in asserting any
such claim, provided that any such assistance shall be at no
cost to the County. The bondholders, obviously, reserve all
rights to pursue claims against any parties other than the
County.
The next point is that the -- the bondholders
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and the County will agree that they will, within 10 days,
and in good faith, use their best efforts to cooperate to
cause all parties involved in the transaction to convene for
a joint discussion or mediation in an effort to resolve
globally all issues arising from the bond transaction. Now,
that -- I'll just be candid with you. In order to convince
the bondholders to make this offer, the bone that I proposed
is -- is that -- that we make every effort to not only
resolve the issue with the County and the sale, but also try
to get everybody resolved immediately. And, in order to do
that, I had to propose that basically y'all help us get all
the players to a meeting tomorrow or the next day, or as
soon as we can get it done, so that we can at least talk
about a global solution to all -- all the outstanding
issues.
The third thing is -- and I think this was a
condition that the Court had requested as well -- is that
this proposal is, of course, subject to preparation of
appropriate legal documents satisfactory to counsel for the
County, and the bondholders' receipt of all appropriate
consents, compliance with all laws, Open Meeting
requirements, and any necessary and appropriate legal
issues. The -- the final issue, before we discuss the
price, is that the -- the bondholders, and hopefully others,
but the bondholders particularly, these 11 bondholders will
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remain open to discuss other details which would facilitate
or expedite this transaction, including financing options,
which would include, but not be limited to, the potential
negotiation of a swap of these revenue bonds for qualified
general obligation bonds of the County under appropriate
circumstances, and at advantageous rates and terms to the
County.
That -- and I know it'll require further
discussion, perhaps with your counsel, but the bottom line
is, if they can help solve other problems that the County
has -- has endured because of this, because of rating issues
or financing questions, they are willing to consider -- and
it was hard to put that in fine terms that I could pin down
with rate and whatnot, but, obviously, if you're looking at
this facility on a going-forward basis, you may wish to have
terms of a general obligation financing that does not
include immediate payment so that you have a, you know,
12-month period to ramp up and rehabilitate the facility and
get it to full capacity. You -- with this rate -- with the
swap of this appropriation indebtedness for -- for general
obligation indebtedness, you may be able to save some
significant closing costs. I'm -- not that I'm trying to
cut anything out of anybody's pocket, but that could be an
issue. The other thing that I would think you would be very
interested in is a rate that would -- that would be a rate
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you would deserve based on general obligation of this good
county.
The final piece of it, and mainly because I'm
running out of words, if a lawyer ever does that, is that --
that the bondholders believe -- and this -- the bondholders
believe, and all those parties involved that we're going to
have to get together to work on this global solution believe
that this facility is -- is well worth two and a half
million dollars. Their proposal is to agree to discount the
existing indebtedness to two and a half million dollars, and
that is based on their study and analysis of what the
facility can do. It's based on all those things I've talked
about. It also is based on the fact that they knew that
this thing had to move fast, and the idea was we had to --
we had to, in essence, cut to the bottom line. And we
would, I guess, on behalf of the bondholders, request that
consideration. And I stand here ready, willing, and maybe
not able, but I will certainly entertain any questions and
encouragement. Because there's a lot of -- lot of issues
and a lot of complexity, but the bottom line is -- is
that -- that we're here on behalf the bondholders to make
the deal work.
COMMISSIONER WILLIAMS: May we have a copy of
the document that you read from so we can --
MR. BRISTOW: Sure. Sure.
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COMMISSIONER WILLIAMS: -- more adequately
examine it, please?
MR. BRISTOW: Sure_ That -- and I'll beg the
Court's indulgence. This is a letter that I -- that I spit
out last night at 7 o'clock in my office, trying to get --
get it down in writing, because I'm -- I'm scurrying with 11
bondholders. But --
COMMISSIONER WILLIAMS: There's a lot of
nuances in there I don't think I understand just by
listening.
MR. BRISTOW: I understand. If you will --
if you will just give me the grace to understand that it was
a draft, and there may be typos in it.
COMMISSIONER WILLIAMS: Ms. Mitchell will be
happy to provide us with copies if you give it to us.
COMMISSIONER BALDWIN: While we're doing
that, I'd like to ask a question of our attorney. Do you --
do you understand and know what he's talking about with --
about global solutions, what all that entails?
MR. SPURGEON: Oh, I think what he is -- is
suggesting is that there are -- I mean, all the other
parties that were involved in the transaction, he would want
-- he wants to bring together to talk about what
contributions they make into the transaction. I think it
was clear to me, with the conversations I've had with her,
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that the County, the Juvenile Board, the issue will be
completely released. What he is -- what -- I think what
they are suggesting is that no other party involved in the
transaction should be released, including ourselves,
financial adviser, underwriter, underwriter's counsel,
perhaps, 'cause I think those are really the only other
parties that -- that -- unless I'm wrong, Herb, those are
the only other parties I think he's talking about in terms
of bringing together to talk about this global solution to
the problem.
JUDGE TINLEY: Is that correct, Mr. Bristow?
MR. BRISTOW: Yes.
JUDGE TINLEY: So, everybody --
MR. BRISTOW: I was trying to listen to two
conversations at the same time.
JUDGE TINLEY: Everybody on the Kerr County
side of the fence, then, would be fully and completely
released in connection with anything arising out of this
transaction?
MR. BRISTOW: That is correct.
COMMISSIONER BALDWIN: And there's all kinds
of rumors floating around, and I'm not going to name any
names, but let's say that there was a possibility of a
problem on the other side of that fence somewhere. Is that
part of the global solution as well? Are we going to sit
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down and visit about everybody involved in this thing? Or
are we just going to sit down and visit about our side of
the fence in the global solution?
MR. BRISTOW: In the global solution, in my
mind -- and, you know, I'm kind of flying by the seat of my
britches, but the global solution is, you know, the
bondholders are -- are obviously taking a -- a serious
haircut, to the tune of two and a half million. They're the
ones who put up the money, so they're the ones that have
lost, and they would like the opportunity to at least sit
down and talk to the potentially responsible parties, which
would be First Southwest, anybody involved in the issuance.
And -- and this -- this proposal involves a release of
everybody on the County's side, so I don't know -- I don't
think, at this point in time, we're -- we're trying to get
real broad. We're trying to understand who might have been
involved in anything that -- that was a wrongdoing. We're
not trying to say anybody did anything wrong, but in defense
of them, they need to make a judgment call as to whether or
not what they bought was what they thought they bought, and,
you know, where this thing went wrong. And if -- if
somebody, you know, ran off with a million dollars at
closing and they find that out, they would like that person
to come and pay that million dollars back. Is that --
COMMISSIONER BALDWIN: You answered my
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question.
MR. BRISTOW: Okay.
JUDGE TINLEY: Mr. Bristow, with respect to
the release of everybody on the Kerr County side of the
fence, in the event the County should have any obligation
under any contractual or indemnity agreements with any other
parties involved in the transaction, would -- would you
envision that your offer would include, in essence, an
indemnity of Kerr County for those obligations under those
contractual arrangements?
MR. BRISTOW: The -- the spirit and intent is
to release Kerr County, period. To the extent -- and I
think I understand there is the potential of an
indemnification agreement out there which I have not seen,
but my experience in representing county governments is that
-- that those indemnification agreements are not enforceable
against the County. If someone has an enforceable
indemnification agreement, and that creates liability on
behalf of the County, then it's our intent to release the
County, and we -- you know, it's not -- we're not trying to
trick anybody and release you here and get you back in over
there. And --
JUDGE TINLEY: That was my whole point. If
we're released out the front door, but we're jerked back in
the back door --
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MR. BRISTOW: I think the spirit is to
release Kerr County, its officers and -- and employees,
directors, officers, et cetera, et cetera.
JUDGE TINLEY: And in the event we're pulled
into some litigation that we've essentially already been
released from, your offer then would include indemnification
to hold us harmless from any costs or expenses?
MR. BRISTOW: With that -- I mean --
JUDGE TINLEY: Or exposure we had in that
respect?
MR. BRISTOW: The only -- the only
responsibility that we're seeking to protect is that if
someone did something wrong, that -- other than County
officials, 'cause they're released. If someone did
something wrong, then we would like the opportunity to
assert that claim. The -- the direct answer is, you know,
Kerr County's going to be released, and it's going to take
some clever, well-written release documents to accomplish
that. But the -- the spirit at the end of the day is -- is
that the bondholders, the folks that put the money up, the
folks that took the discount, would go hand-in-hand with the
County, in name, and find out if there's anything out there
where there's responsibility to the bondholders for that
loss, and go hand-in-hand with them and assert those claims
for the benefit of the people that lost the money.
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There's -- I've -- I mean, it can be done. It has been done
before. You know, and I've got some -- some experience with
an almost identical situation where the county, in essence,
was released, and the other parties to the transaction were
not.
COMMISSIONER WILLIAMS: Mr. Bristow, thank
you for your presentation. I appreciate the -- your
providing the Court with this document. My question to you
is, are you empowered by the bondholders and those that you
stand in representation of today to negotiate from this
document, or is this document to be accepted on its face
value?
MR. BRISTOW: At the -- at the present
time -- and this is the authority I have, and it involves
more than just the bondholders, but I -- I absolutely have
the authority to make that deal. I have the bondholders --
I requested that they stand by in anticipation of this
discussion. Obviously, I could not detail for the Court the
details of the financing, so I knew there were some issues
there to be resolved. So, the -- the short answer is,
that's -- that's what I have authority to do at this moment
in time. If the Court asks me to go ask -- to get a
commitment for an interest rate at negative 5 percent, I'll
go ask them. And I really think it -- the spirit is, we're
here to make the deal work. And the County -- you know, the
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County has to make the decision too, 'cause they -- they
need to know it's going to work for them too.
And we've tried to analyze all the issues and
put you in a position where it will work for you, and I
believe that, at that number, with the right structure, with
what -- what I know and others know about the juvenile
business and where everything is, which is a bunch of stuff,
that that number, with the appropriate financing, that this
transaction will work, the facility will be successful, and
Kerr County Juvenile Detention Center will be back where it
was three years ago. But I'm trying to sell the deal, so
you can take what I say with a grain of salt. But I have --
I have consulted with -- I've contacted people with the
federal immigration and customs enforcement, and
interrogated them about what their demand is. They have a
high need right now, and they were actually encouraged to
know there might be a juvenile facility where there would be
space.
I know that -- that there is a lot of --
there was a lot of juvenile bed demand that has fallen off
the map in the last two years. I think it's -- you know,
it's turning up. I think -- my impression is that you've
got -- your current operator seems to be energized, and with
the right programs, and if you can get over the stigma of
having some problems in this facility, that other juvenile
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courts, your adjoining counties, will send -- they'll send
kids to facilities where there's good programs. They're not
going to say, "We're not going to send a kid to Kerr County
because their facility's no good." It's not the bricks and
mortar; it's the program. So, I've gone astray of what you
asked, but --
COMMISSIONER WILLIAMS: That's fine. Thank
you very much.
JUDGE TINLEY: Any more questions of Mr.
Bristow?
COMMISSIONER LETZ: Just briefly. Did you
talk at all about some sort of a -- I guess an arrangement
that, if the facility does as you're hoping, and say it may
do, you know, start becoming full again -- and I hate to use
the term "making money," but making money to service the
debt, that if that happens to a degree, that the bondholders
get paid off at that point, some of these funds?
MR. BRISTOW: Yes. I mean, I -- I -- we have
discussed every conceivable option. And there are certain
of the bondholders that -- that would propound that as their
preferred option; that we just take this facility, the
County operate it, get it up to speed, turn it around, and
pay these bonds off as it was intended. My inclination --
and I was taking my leave from -- what I was hearing from
the Court was -- was that the Court wanted a solution.
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COMMISSIONER LETZ: I think you misunderstood
what I said, I think. That the -- basically, the analysis
that I did when I made the motion for the 1.75 million
offer, I don't see how we can come anywhere close to 2 point
-- two and a half million. That's just my feeling. Unless
there's -- something changes in the next couple years, which
certainly could happen. This thing went down in a hurry,
and it can hopefully go up in a hurry. But if there was
a -- a year from now, if it started recovering some, then I
can see, you know, some sort of arrangement where we would
pay additional money back above the one and three-quarter
million at that point, but only if the facility started
generating enough revenue to support such payments.
MR. BRISTOW: And, I mean, I -- I appreciate
that thought process, and -- and I -- and I think that you
can -- you can accomplish the same basic thing and get
better closure and better hope of -- of turning this thing
into a transaction and use the deferral or -- for example,
if we closed this deal today and went to closing by 12-31 or
whatever, or January 31, however long it takes to get the
lawyers to put all the papers together, we can do a swap of
this appropriation debt for general obligation debt at two
and a half million, and you defer the payments for -- you
know, stairstep it or do whatever your consultant will tell
you to do. You know, let's ramp it up slow. You can
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accomplish the same thing, and -- you know, and get yourself
that time, because your cash flow -- you know, you're going
to have a -- you're going to have a building process. It's
not going to -- it could. I mean, actually, if the federal
demand is as high as I believe it is, I mean, you may turn
that switch on and it go to full speed immediately. But the
bondholders are willing to refinance it, turn it into
general obligation debt, and then defer the payments to
allow maximum opportunity for the facility to succeed.
COMMISSIONER WILLIAMS: What do you know
about the potential interest rate of general obligation
bonds under a scenario as -- as you've painted here?
MR. BRISTOW: I -- I mean --
COMMISSIONER WILLIAMS: I'll direct the
question to our financial adviser. I just want to get your
sense of it.
MR. BRISTOW: It would be cheaper than what
you're paying now, I think. It depends on the rating, I
think. I mean, I don't --
COMMISSIONER WILLIAMS: That's --
MR. BRISTOW: I really --
COMMISSIONER WILLIAMS: That's another issue.
MR. BRISTOW: I'll defer that to somebody
smarter than me. But it's -- I don't know. Somebody --
MR. HENDERSON: Well, I think -- I think we
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would want to probably identify an agreeable index, like a
Delphi yield curve based on maybe the A underlying credit
rating the County's tax-secured debt enjoyed before all this
happened. Obviously, S and P has lowered your rating to
triple B-minus at this point. We are in conversations with
S and P. We do not know and cannot predict what S and P is
going to rate the county if and when we can reach some
settlement with the bondholders. But -- but I would suggest
that we say -- you know, we pick a date and say we're going
to establish the yields at whatever the Delphi yield curve
says for a single-A rating or an A-minus rating or whatever
rating can be agreed upon as an index.
COMMISSIONER WILLIAMS: Are we -- are we
being held to a standard by S and P for future bond rating,
which obviously is out of our control, or -- or can a
negotiated interest rate between Kerr County and the
bondholders be structured?
MR. HENDERSON: I think the County can
negotiate whatever rate is mutually agreeable to the
bondholders and the County. We do not have to be bound by
what S and P says. I would suggest, in light of the fact
that Moody's and S and P has a very different viewpoint than
S -- I mean -- I'm sorry, Moody's and Fitch has a very
different viewpoint than S and P on these things, I would
not suggest that we tie ourselves to S and P's viewpoint on
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this issue.
COMMISSIONER WILLIAMS: I guess these are
things we'll need to talk about.
MR. HENDERSON: Yes, sir.
MR. BRISTOW: That's the beauty of -- of
everybody rowing in the same direction. There are certain
components of this, if we're -- if we can get on the same
wavelength, that that could work to both parties' advantage.
And, obviously, the more advantageous we make the financing,
the more likely that you are to agree to the value that's
suggested. There -- there -- you know, I think everything's
on the table at this point in time.
JUDGE TINLEY: Any other questions for
Mr. Bristow before we consider going into executive session
to consider this proposal concerning the acquisition of the
facility? If not, we will go out of open session at 3:32,
it looks like, and as soon as we get all the arrangements
made, we'll go into closed session. We're going to need
Mr. Spurgeon, Mr. Henderson, and probably Ms. Harris.
(The open session was closed at 3:32 p.m.,
and an Executive Session was held, the
transcript of which is contained in a
separate document.)
JUDGE TINLEY: Okay, let's come back to order
in open session. It is 4:32. Does any member of the Court
have anything to offer with respect to the agenda matters
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and -- pursuant to matters discussed in closed or executive
session?
COMMISSIONER LETZ: I make a motion that we
make a counter-offer of 1.9 million. Paragraph 3 will be
deleted in its entirety in the counter-proposal, and
Paragraph 2, everything after the sentence I read will be
deleted. The bondholders will agree that upon closing sale
-- I don't have my glasses, so you'll have to bear with me.
COMMISSIONER WILLIAMS: I'll read it.
Paragraph 2, Line 3, reads: "...officials arising from the
bond transaction," period. The rest of the paragraph be
deleted. All of Paragraph 3 be deleted. And the top
paragraph on Page 2, general obligation bonds would not be
what we're talking about. We'd be talking about
certificates of obligation. I think those are the letter
changes that --
COMMISSIONER LETZ: And that -- Judge, you
may have written some notes on some other conditions that we
had.
JUDGE TINLEY: With respect to working out
some terms on generally cooperating with the asserting of
third-party claims and the release of Kerr County and the
Kerr County entities, and I'm speaking in the very broadest
sense, would include those entities, board members, public
officials, officers, employees, et cetera, would include the
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assuming of obligations which any of those entities may have
under indemnity agreements or some other arrangements that
might be directed toward -- towards Kerr County as a result
of anything arising out of these transactions. You
understand what I'm speaking of?
MR. BRISTOW: And I'm assuming that that
would mean valid indemnity agreements. If they're -- if
they're not valid and enforceable, then they'll be of no
effect.
JUDGE TINLEY: That's correct, except that
you would assume any obligation and cost expenses in
connection with the defending on those, and you don't know
till the end of the road whether or not they're valid or
invalid. In the meantime, you may have expended costs and
so forth. But all costs and expenses, attorney's fees and
so forth, as well as any -- any loss that may be incurred as
a result of final judgment or settlement or otherwise.
MR. BRISTOW: Understood.
COMMISSIONER WILLIAMS: Is that your motion?
COMMISSIONER LETZ: That's it.
COMMISSIONER WILLIAMS: I would second the
motion with one other caveat, that whatever pro forma that
you may have put together, singular or plural, that support
the contentions that you advanced to us be provided to
Ms. Harris so she can review them and give us her best
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judgment.
JUDGE TINLEY: Any other questions or
discussion on the motion?
COMMISSIONER NICHOLSON: I've got a statement
on the motion that I'm talking -- speaking mostly, I think,
to the citizens of Kerr County who are here, and to the
press. I believe that a lot of our citizens in Kerr County
believe that Kerr County government has a -- a legal
obligation about this debt. I believe that there's a number
of people who think that we are reneging on a debt that we
owe, and I'm going to read from the -- the bond statement
dated December 4, 2002. It says the bonds "do not
constitute an obligation, either special, general, or moral,
of the County, the State of Texas, or any other political
subdivision or agency thereof." So, I want to -- I want to
be clear that it -- based on advice from our counsel and
from the clear reading of -- of the bond statements, that
Kerr County -- Kerr County government does not have any
obligation for this debt. No -- no legal, contractual, or
moral obligation. So, I would hope that -- that our
constituents and citizens of Kerr County would come to
understand that. That's all.
JUDGE TINLEY: Any other questions?
Comments?
COMMISSIONER WILLIAMS: I have another
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comment, but I'll make it after we've had a vote.
JUDGE TINLEY: Okay. All in favor of that
motion, signify by raising your right hand.
(Commissioners Williams and Letz voted in
favor of the motion.)
JUDGE TINLEY: All opposed, same sign.
(Commissioners Baldwin and Nicholson voted
against the motion.)
JUDGE TINLEY: The vote is 2 to 2. The chair
votes in favor of the motion.
COMMISSIONER LETZ: Judge? Due to
obligations, I must leave.
JUDGE TINLEY: All right, sir.
(Commissioner Letz left the meeting.)
JUDGE TINLEY: Is there any other business
presently before the Court?
COMMISSIONER WILLIAMS: Judge, I'd like to
make a statement also with respect to Kerr County and its
involvement. I have it prepared for members of the press
who want it; you're welcome to it. But I was a little bit
distressed this morning at the two letters of -- that were
-- appeared in the Kerrville Daily Times, letters to the
editor. My comment is that it was only a matter of time
before the boulder of blame would land squarely on
Commissioners Court	desk.	The two	letters the editor
published today --	today's	issue of	the Kerrville Daily
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Times clearly illustrates to me the extent to which the
public misunderstands the issues that affect the existence
and continuation of the Juvenile Detention Facility. The
record shows that the Juvenile Detention Facility was built
in 1994 by a public corporation, Recor. Kerr County was
involved only as a user of the facility and its services.
Subsequently, Recor defaulted on its financial obligations,
and shortly thereafter, a public-use facility was formed and
purchased the facility. The facility corp. leased the
facility to Kerr County Juvenile Board.
In '02 -- 2002, a new public facility
corporation was set up to buy the facility and borrow
additional funds for a planned expansion, achieving in the
process lower interest on a combined debt. It was at this
juncture that Kerr County became involved solely for the
purpose of leasing the facility from the Juvenile Facilities
Corp. and contracted with the Juvenile Board to operate the
facility. Since then, reserves, more than $800,000, have
been spent. Advocacy, Inc. has been in and out of the
facility investigation allegations of abuse. The Texas
Justice -- T.J.P.C. has conducted its investigation.
Therapeutic programs have been lost or discontinued. Daily
census has been depleted. Daily income has eroded, and only
in September did Commissioners Court really become aware or
required to be involved. It is my opinion, if there's any
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blame to be assessed, it does not fall on this Commissioners
Court.
it's there.
COMMISSIONER NICHOLSON: Well said.
COMMISSIONER WILLIAMS: Anybody who wants it,
JUDGE TINLEY: Anything further?
MR. SPURGEON: Judge, one thing in terms of a
response back from the bondholders, timing and those type of
things. What would you request? Expect? And I guess I
might even pass it on to Herb to ask what might be
reasonable?
JUDGE TINLEY: I think -- I think I'd be
interested in what he might have to say insofar as when we
might expect something. Obviously, you know, it's a good --
good while before dark.
MR. BRISTOW: I don't know, from a practical
standpoint, that -- I don't know if the Court is expecting a
response today. That -- you know, the -- the box that I'm
in is I've got 11 bondholders that all have to vote
affirmatively on any action I take. I'm certainly willing
to make that effort, but, I mean, the Court may have to
indulge me for some time. Otherwise, I mean, I could
suggest that -- that we reconvene soon. I understand the --
the time crunch.
COMMISSIONER WILLIAMS: "Soon" meaning, in
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your mind, what?
MR. BRISTOW: Today is Wednesday. Friday?
Monday? Or -- I mean, I don't mind taking a crack right
now, but the -- I would not want to frustrate the Court with
all the logistics that I've got to deal with to get a
response. I can --
COMMISSIONER WILLIAMS: We don't want to
frustrate you, either, with all the logistics that we have
to be involved in if the facility doesn't continue to
operate.
MR. BRISTOW: Yes, sir, I understand.
JUDGE TINLEY: Let me pitch something else in
the mix. If we are to recess, I think it's generally
conceded that, under normal circumstances, we not do so more
than 24 hours, which gives us a limitation of tomorrow
afternoon. Otherwise, we're going to have to post, and
that's going to be Monday at the earliest, and that's
probably beyond the limits that Ms. Harris can operate under
with her logistics. So, I guess the most we can offer you
at this point is sometime before this time tomorrow.
MR. BRISTOW: Would the Court indulge me for
about ten minutes so that I can consult with those that are
present?
COMMISSIONER WILLIAMS: Sure.
MR. BRISTOW: I mean, I hate to do that to
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you, but until I talk to my -- I've got to get the marching
orders from my client. And I will do what I can to get the
best case scenario so that we can -- we can deal with these
issues.
JUDGE TINLEY: All right. The Court'll be --
COMMISSIONER NICHOLSON: Let me ask a
procedural question. The way you all are operating, if one
of the banks turn down the offer, then it's no deal?
MR. BRISTOW: That is the structure that the
deal is under, and that is not our choice. That's the way
it --
COMMISSIONER NICHOLSON: So, if one of the
bankers present doesn't accept the deal, you might be able
to tell us in a few minutes that we don't have a deal.
MR. BRISTOW: Yeah. I mean, I can tell you
right now, I'm not authorized to accept that deal. What I
will do is get with the ones that are present; we will get
on the phone with the others that we've asked to stand by,
and -- and either get them to concur that we need to meet
tomorrow afternoon, or come back with whatever it is I can
get them to do. But -- and I'm -- I'm willing to wrestle
this bear any way we can get it done. So --
JUDGE TINLEY: You indicated you -- you might
have a response for us shortly, or at least a better
indication of what might be a more appropriate time tomorrow
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for us to take this matter up again?
MR. BRISTOW: That's -- my thinking is to ask
the question, guys, can we realistically get a response
today? That's -- let's make that decision pretty quick. If
we can't, let's make a decision that we can be back -- I
would rather not adjourn and have to report, because I
understand the logistics of that. So, if you could give me
ten minutes to consult with the bondholders and try to make
a couple of quick phone calls, I will come back and tell you
either we look forward to seeing you tomorrow, or something
else.
JUDGE TINLEY: Okay.
MR. BRISTOW: Okay?
JUDGE TINLEY: Anything further, gentlemen?
Any of y'all? The Court'll be in recess for 10, 15 minutes,
subject to recall of the chair.
(Recess taken from 4:42 p.m. to 5:44 p.m.)
JUDGE TINLEY: We'll come back to order. The
Court was in recess subject to the call of the chair, and
it's now a quarter till 6:00 in the evening. Mr. Bristow?
MR. BRISTOW: Yes, Judge, Commissioners
Court. I'm pleased to be able to report back to you that --
that I believe that we have the makings of an agreement in
principle. My understanding is that -- if I got the
corrections from the earlier motion correct, is that the
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proposed purchase price is 1.9 million; that we were
striking the provision in Paragraph 2, leaving in the last
sentence of Paragraph 2, and that we were deleting Paragraph
3 and changing the word "general obligation" to C.O.'s.
COMMISSIONER WILLIAMS: Excuse me.
MR. BRISTOW: Yes?
COMMISSIONER WILLIAMS: Say again what you
said about Paragraph 2.
MR. BRISTOW: Okay. Paragraph 2, it's my
understanding -- and I was writing as fast as I could, and
may have missed it, but you're striking -- after the word
"bond transaction," striking the words, "provided that the
County will..."
COMMISSIONER WILLIAMS: That's correct.
Okay.
MR. BRISTOW: And -- but the last sentence,
"The bondholders reserve all rights to pursue claims against
any parties other than the County," is left in.
COMMISSIONER WILLIAMS: Okay.
MR. BRISTOW: I just wanted to make sure
we're on the same page, 'cause I was -- I was writing so
fast that I was --
JUDGE TINLEY: In that context, does your
acceptance include the assumption of any indemnity
agreements that the County -- valid indemnity agreements
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that the County may have with respect to --
MR. BRISTOW: It is our intention --
JUDGE TINLEY: -- other parties, and as well
as the obligation to defend at no cost and so forth?
MR. BRISTOW: Yeah. It is our intention that
if -- I mean, the County is being released, period. End of
story. We don't -- and the lawyers aren't going to let you
leave a trick in there where you can drag them back in.
But -- and I think we're clear on this, that -- that if some
-- if there is an indemnification agreement that is
unenforceable on its face because of law that affects county
government and securities and -- if it's not valid, then --
then we -- we have -- we have the obligation to defend any
claim under that indemnification provision, but we're not --
we're not confessing that until we have a chance to look at
whether it's enforceable or not. The -- the logistics --
JUDGE TINLEY: You're not confessing the
validity, but you will agree --
MR. BRISTOW: To defend.
JUDGE TINLEY: -- to defend, and if
determined to be valid, to indemnify the County from any
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MR. BRISTOW: Yes. For --
JUDGE TINLEY: Okay.
MR. BRISTOW: -- a written indemnification
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that's found to be enforceable.
JUDGE TINLEY: Okay.
MR. BRISTOW: It's not our intention to in
any way allow the County to get sucked back in through an
indemnification agreement.
JUDGE TINLEY: Okay.
MR. BRISTOW: We're releasing the County,
period. End of story. And, like I said, I think the
lawyers will be able to figure that out and make sure that
that doesn't happen. And, you know, obviously, we'll have
to come back to the Court with those documents and -- and
get approval of them. The -- the logistical issues that --
that I would like to address with the Court and beg your
indulgence on is, in order to avoid having to come back for
a meeting tomorrow, what I would like to suggest, if the
Court would entertain this, is that -- that, given my
ethical and legal constraints and the requirement that I get
100 percent consent, and the fact that some of these
investors are individuals that I can't physically get ahold
of right now, I believe I know that it's going to go
forward, and I -- you know, I will try to do everything I
can to make sure that the answer is yes, but I would like
the -- the opportunity to be able to call the County Judge
or the attorney or someone, and the answer be it's a go or
it's not a go. And I'm not interested to -- in negotiating.
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I just want to say it's a go, and let the lawyers get turned
loose to draw the documents.
JUDGE TINLEY: Confirming that you have the
unanimous consents?
MR. BRISTOW: Yes. I cannot commit, 'cause I
don't have unanimous consent, and, you know, I'd lose my law
license if I did without getting their consent. So, I'm
begging your indulgence on that issue. The -- the other
issue is -- is that the bondholders would like to have the
opportunity to come back to the Court and request that the
-- that, in the documents, there be included a provision
that if, in the event and when, and under the appropriate
circumstances, that the facility is generating sufficient
revenues to cover all our operating expenses, cover the debt
service, and some buffer that will be agreed to, that the --
the bondholders be -- they're going to ask for -- and we're
not asking for a commitment from you, but we're going to
come back and ask you to agree to allow us to recover up to
the two and a half million purchase price. And I'm not
asking you to vote on it; I'm just telling you straight-up,
I -- I need to be able to say we're going to ask for that.
And you can tell me to take a hike, but I hope that once the
business terms of that are worked out, that it will be
something that -- that you would be interested in
entertaining.
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COMMISSIONER WILLIAMS: Basically predicated
on performance?
' MR. BRISTOW: Yes.
JUDGE TINLEY: Mm-hmm.
MR. BRISTOW: Absolutely. It would be only
after there is -- and it's upside, and it's the hope that we
might recover up to the amount -- or the value that was --
has been placed on the facility. But we would predicate it
on performance. And, you know, everybody hopes that it
happens like that. If it does, we'd like the opportunity to
-- just a little one, to recover some of those losses.
Anything I'm forgetting?
MR. SPURGEON: I don't think so.
MR. BRISTOW: With that, I guess, you know,
the -- the only action is for me to call, I guess, you,
Judge, tomorrow and say it's a done deal. The other issue,
just as a matter of information, is that we are going to try
to convene a meeting, either in Dallas or in Waco, on Friday
at 10 o'clock with all of the parties involved in the
transaction to try to work out a global solution. And,
obviously, we know that we have an affirmative answer to
this, and we're going to -- we're going to work towards a
global solution on Friday, and certainly would invite you,
Judge, to attend if you can. I understand that that's out
of the agreement; you don't have to. We would like -- you
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know, like for you to participate if you can. And,
obviously, we'll invite everybody that's involved in the
deal. That's just by way of information that we're going to
try and get a global solution on the table A.S.A.P.
JUDGE TINLEY: Do any of you gentlemen have
any questions of Mr. Bristow at this juncture?
COMMISSIONER WILLIAMS: I have one.
JUDGE TINLEY: All right.
COMMISSIONER WILLIAMS: I may have missed
your comment with respect to Paragraph 3.
MR. BRISTOW: Yeah. The Paragraph 3 was
basically -- we were going to agree to try to get this thing
resolved, and you struck it, and I understand that.
COMMISSIONER WILLIAMS: Okay.
MR. BRISTOW: And it's not an obligation.
But in -- in that spirit, I'm just telling you that -- that
everybody involved in the deal's going to be invited to a
party on Friday to try to resolve the thing. And anybody --
COMMISSIONER WILLIAMS: You want to go to
Waco on Friday?
COMMISSIONER BALDWIN: No.
MR. BRISTOW: And I'm just --
COMMISSIONER WILLIAMS: Hometown?
MR. BRISTOW: And in the spirit of trying to
just get this thing moving and rolling in a positive
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direction.
COMMISSIONER BALDWIN: Friday night in Waco
is the 3-A state high school football championship.
COMMISSIONER WILLIAMS: That's a good
reason --
COMMISSIONER BALDWIN: May want to
reconsider.
COMMISSIONER WILLIAMS: May want to
reconsider that.
MR. BRISTOW: Well, any and all will be
welcome. Obviously, it'll be a private meeting, so if more
than one County Judge and one Commissioner comes, we'll have
to do something about that.
COMMISSIONER WILLIAMS: Dave and I spent time
there before; we know about Waco.
JUDGE TINLEY: Any -- any of you gentlemen
have any other questions?
COMMISSIONER BALDWIN: Don't have any
questions of him, but what is our -- what is our move now?
What do we do now?
COMMISSIONER NICHOLSON: I think they've
accepted the counter-offer.
JUDGE TINLEY: Mm-hmm.
MR. BRISTOW: We wait for your -- excuse me.
COMMISSIONER NICHOLSON: We don't have to
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take any other action.
JUDGE TINLEY: Waiting for them to confirm
unanimous agreement to their believed acceptance, which
they're going to call me --
COMMISSIONER BALDWIN: Tomorrow.
JUDGE TINLEY: -- tomorrow on. It's a matter
of confirmation, he believes, and he's operating in good
faith, as are we. So --
COMMISSIONER BALDWIN: I understand. Is
there any further action by this Court, though?
COMMISSIONER NICHOLSON: Do we have to do
something to help Ms. Harris with the continued operation of
the Juvenile Detention Center?
JUDGE TINLEY: There will be -- there will be
appropriate items on the agenda for Monday to address the
needs of the detention facility.
COMMISSIONER WILLIAMS: I bet.
MR. SPURGEON: And, Judge, to extend the
lease agreement until January. We think we can probably get
the C.O.'s completed by then.
JUDGE TINLEY: That's already on the draft of
the agenda.
MR. SPURGEON: But you'll need to go through
the process of issuing C.O.'s, which will take a couple
different meetings for notice of intention and --
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COMMISSIONER NICHOLSON: When she goes to
work tonight or in the morning, whichever, she -- she can
operate believing that there's a good-faith deal to continue
for -- for a continuous operation of it. It may unravel,
but if you got faith, well, the good-faith effort may work.
MR. HARRIS: Okay.
JUDGE TINLEY: I think she's had probably as
much faith as can be expected to this point.
COMMISSIONER WILLIAMS: You got to know it.
COMMISSIONER BALDWIN: Judge, I just want to
make a comment, that my "no" vote is that -- is because I
feel like that it's just simply a bad investment for the
taxpayers of Kerr County. However, once the thing comes
together and it's approved and we're down the road -- going
down the road with it, then you will see me jump on board
and support the -- support it. If that's -- if that's the
wishes of this Commissioners Court, I will be a part of
that.
Commissioner.
JUDGE TINLEY: I appreciate that.
COMMISSIONER NICHOLSON: As will I,
JUDGE TINLEY: Thank you.
COMMISSIONER WILLIAMS: Which I think, also
-- I appreciate both -- both of your comments about it, and
I think as we progress down this line, once we've had an
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opportunity to meet with Mr. Spurgeon and Mr. Henderson and
talk about this indebtedness restructured and other things
that are going to confront this Court, I think the picture
will crystallize a little bit more favorably.
JUDGE TINLEY: The overall scheme of things,
you're speaking of. Yeah, I think so also. We appreciate
your participation, your cooperation, and your strong
good-faith efforts, and we look forward to getting this
thing resolved on a smooth and -- and amicable basis. And
we still got a lot of work to do.
MR. BRISTOW: A lot of work.
JUDGE TINLEY: I think we all know that, and
we are rowing the boat the same direction, and that's what
it's going to take to start with. Yes, Ms. Harris?
MR. HARRIS: I just want to say one thing,
how much I appreciate the Commissioners Court for all of
your patience and your hard work and your study and your
commitment. I really appreciate y'all. And I want to tell
you how much I appreciate you gentlemen, because I know that
y'all wanted to keep the facility open, and you helped and
supported that, and I want to tell you how much I appreciate
that.
COMMISSIONER BALDWIN: The question is, how
much do you appreciate it? I mean, is there a -- is there a
dinner in this thing? Or -- (Laughter.) How much do you
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appreciate it?
MR. HARRIS: I make a mean peach cobbler.
COMMISSIONER BALDWIN: All right.
JUDGE TINLEY: You got his attention, I can
assure you.
COMMISSIONER BALDWIN: I can change my vote
in a heartbeat. (Laughter.)
MR. HARRIS: That's worth a peach cobbler.
JUDGE TINLEY: At this point, I'm going to
recess until tomorrow afternoon at 4 o'clock. And I'm doing
so because just in case we need to have any housekeeping
issues with respect to this, in this manner, we won't have
to repost or anything if we've got some cleanup or -- or
related actions that we've got to take. So, we will stand
in recess until 4 p.m. Thursday, December the 9th.
(Commissioners Court recessed at 5:57 p.m.)
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STATE OF TEXAS ~
COUNTY OF KERR ~
The above and foregoing is a true and complete
transcription of my stenotype notes taken in my capacity as
County Clerk of the Commissioners Court of Kerr County,
Texas, at the time and place heretofore set forth.
DATED at Kerrville, Texas, this 10th day of December,
2004.
JANNETT PIEPER, Kerr County Clerk
BY : _____ __ ~K.,~G _______ _
Kathy ik, Deputy County Clerk
Certified Shorthand Reporter
12-8-09