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Xenia debt forgiveness denied

By Staff | May 7, 2010

BOUTON – Assured Guaranty is not willing to forgive loans to Xenia Rural Water District – which means that future rate increases for Xenia customers could occur.

The debt forgiveness was part of a proposal approved by the board in March to get the water district out of insolvency. The 22 percent hike in user fees was another component of the plan, as well as a sale to Des Moines Water Works for $110.5 million.

Xenia is currently facing a $140 million debt.

Xenia board member Marc DeLong told members of the public at the board’s annual meeting he would be blunt.

“There are no plans for future rate increases,” DeLong said. “We hope we can negotiate with our lenders. However, under the indentures and according to Assured Guaranty attorneys, they have the right to take us to court and have a judge force a rate increase on us. We hope the situation doesn’t come to that.”

The board reviewed letters sent by lenders Assured Guaranty and the U.S. Department of Agriculture Rural Development Agency during its monthly board meeting yesterday afternoon.

Loans total $45.5 million between the two lenders.

Payment on the USDA debt has not been paid since Sept. 1, 2009, and according to the company’s comptroller, Xenia will not be able to pay the $1.9 million due on its Series 2006 bonds.

In a letter to the district dated April 16, Assured Guaranty clearly said it will not forgive the district’s loans.

“As we have stated to the District and its counsel consistently and unequivocally from the outset of our discussions, we are not receptive to any reduction of the principal amount payable by the District with respect to the Bonds,” wrote Brian Siper, an agent for Assured Guaranty Corp.

The letter further informed the board that Assured Guaranty intends to revisit the recent 22 percent rate increase approved by the board in March.

Assured Guaranty alleges that the rate increase is less than what is required under the terms of the resolution and the Code of Iowa.

“We reserve judgment on whether such rate increases are acceptable at this time,” Siper wrote. “We intend to revisit such rate increase in the near term after we have further examined the District’s operation and management.”

“They indicated they disagreed with our proposal,” DeLong said. “However, and this is my impression, they weren’t going to pursue this in a confrontational manner in the near future.”

The USDA also responded to the districts insolvency proposal by telling the district “further evaluation is necessary.”

The department has employed Rural Utilities Service field accountants to conduct an examination of Xenia’s financial records in mid-May.

The accountants will review an extensive list of company records covering finances from fiscal year 2001 through the current fiscal year-to-date 2010, as well as records from the Xenia Economic Development Corp.

Components of the 17 point check list from the USDA includes water supply contracts for all major customers, internal control policies related to capitalization of assets, customer database records documenting the total number of customers, and salary information on all employees for the last five years, including W2s and any 1099s issued to employees.

In addition, an audit by the state of Iowa is expected to be published in mid-May regarding Xenia’s 2009 finances.

Board President Tom Pierce said the board decided to use auditors from the state rather than auditors from the private sector because of requests from Xenia members last year and to save money.

The audit will be available online at the state auditor’s web site under financial reports.

Contact Lindsey Mutchler at (515) 573-2141 or Lindsey@messengernews.net

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