Thursday, April 09, 2009

April 9, 2009 County Debt: Fox Guarding the Henhouse

The New York Times has broken the story about Morgan Keegan investment bank and complex debt instruments (bond derivatives) issued by Morgan Keegan for many Tennessee counties and cities.

Click here for the NY Times article. [C.L. Overman of Morgan Keegan is mentioned in the article but would not make a statement. Several years ago Overman was City Administrator for Morristown. Through Morgan Keegan, Overman has handled debt financing and refinancing for the City of Morristown]

Joe Ayres of Cumberland Securities/Morgan Keegan is also mentioned in the article. Joe, the long-time financial advisor for Hamblen County, steered the county into numerous complex bond derivative instruments--like those mentioned in the article--during the 1998 school building program. The debt was structured so that millions of dollars in interest would be paid for years and years before even ONE PENNY would be paid to reduce the principal of the debt.

The school/county debt (1998-2001) totals about $40 Million. Morristown-Hamblen Hospital debt is another $28.7 Million for a total of $68.7 Million dollars of debt.

Hamblen County began accumulating its $68.7 Million of debt in 1998. Ten years later, after paying for financial advice and paying financing and refinancing fees and charges, the county still owes the same $68.7 Million of debt.

Conflict of interest? Churning debt over and over to make commissions and fees?

One Mayor whose town was burned by Morgan Keegan cancelled the town's relationship with Morgan Keegan and said, "We...need[] advice from someone who [is] not trying to sell us something."

In counties and cities across Tennessee, the fox was guarding the henhouse and was getting paid three times for his services. Paid to advise. Paid to handle the initial debt issuance. And in many instances paid a third time when things fell through and the city or county had to refinance to get out of the derivative debt instrument!

And the New York Times broke the news to Tennessee and the nation.

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