BRUNSWICK COUNTY –– The Village of Bald Head Island has formally initiated the statutory process required of local governments seeking to issue debts in excess of $1 million in an effort to obtain the island’s sole method of transportation.
In a Thursday notice addressed to regulators, the island government seeks permission to take out $52.5 million in general obligation bonds to purchase the ferry system owned by Bald Head Island Limited.
The notice arises after a special meeting last Tuesday, in which village council met in closed session for an hour and a half and announced no action before adjourning. It signals the village’s seriousness in purchasing the ferry system, first indicated mid-March.
Vying for a lower debt service
Limited has two formal prospective buyers: 1. the village; and 2. the Bald Head Island Transportation Authority (BHITA), a government body created by the legislature in 2017 with the express purpose of acquiring the private ferry system.
As a brand-new entity with no credit history, the authority is seeking to purchase the ferry system using revenue bond financing –– debt backed by future ticket fares. Rated BBB- –– comparatively strong for a ferry system but the lowest-ranking rating still considered worthy of investment –– the authority’s 30-year interest charges ($49.3 million) would nearly equal the $49.9 million principal.
In contrast, general obligation bonds are considered safer investments. This debt is backed by revenue earned by the municipality, of which a majority is derived from property taxes. General obligation bonds typically must be approved by voters; last municipal election, 87 total voters elected the last spot on village council.
Bald Head is betting on obtaining a higher bond rating and a lower interest rate, thereby lowering the total debt service over time to purchase the ferry assets.
However, no information relating to the island’s actual or potential bond rating or financial feasibility of purchasing the system has been discussed publicly. Mayor Andy Sayre acknowledged the village had been working with its attorney and bond counsel in a meeting last weekend before the island’s property owners’ association board.
“As far as we have been able to see from attending meetings and looking at the minutes of the meetings, nothing about the bonds or the purchase has been discussed in open session,” authority chair Susan Rabon wrote in an email Thursday.
Aside from the type of bond, the authority and village also differ in terms of representation. A village-owned system would be governed entirely by island residents; an authority-owned system includes representation for village, county, and Southport residents. Both Brunswick County Board of Commissioners and Southport Board of Aldermen unanimously sided with the authority after the village first revealed its intention to purchase the system for itself.
Island leadership say the authority has a hands-off understanding of the system, whereas a village-owned system would be more in tune to riders’ needs.
In a Friday afternoon newsletter, the village announced the move seeking to issue bonds was to safeguard the integrity of the island’s transportation system: “The Village steps are designed to avoid the transportation system being sold to a privately-owned third-party or broken into pieces and purchased by several parties, which has been suggested by the current owner, should acquisition by a public entity fail to go through. Letting the transportation system fall into the hands of third-party owners and investors would be the worst-case scenario for Bald Head Island.”
The village claims its maneuverings are not a “competitive endeavor.” Instead, it’s to prevent the worst-case scenario, the village announced.
With an 11-member board, BHITA’s application to purchase the ferry using $55.9 million in revenue bonds is tangled up with the Local Government Commission (LGC). BHITA first approved its asset purchase agreement 7-4, with all four dissenting votes cast by island residents in early December 2020. Weeks later, the village wrote to the LGC opposing the sale to the authority. The LGC has deferred action on the item in part due to village opposition and questions surrounding the appraised value of the system, comprising the ferries, barge, tram, and mainland parking business.
Deep Point Marina in Southport was appraised at $36 million –– more than half of the county’s tax value. This discrepancy drew the ire of island residents, village council, and most notably state auditor Beth Wood. “Either Brunswick County has got a really bad tax assessor and y’all are missing out on a lot of revenues, or there’s something wrong with the appraisal,” she said at an LGC meeting last month.
Notably, the village’s proposed not-to-exceed principal amount is just $3.6 million shy of the authority’s. For months, the village’s chief complaint has centered around the fear of overpaying for the system. Village supporters have decried the concept of purchasing the system at a premium after claiming Limited ignored or deferred much-needed capital improvements for decades.
Right of first refusal
In 1999, the village and Limited signed a right-of-first-refusal agreement, granting the village a 60-day option to purchase the ferry system in the event the company sought to sell the assets.
Recorded in the register of deeds, the agreement has no expiration date. In September 2020, the village waived its rights in this decades-old agreement (citing a confidential legal communications statute, the village’s counsel declined to provide a copy of the waiver).
This waiver appears to expire on Aug. 31. Last month, the authority asked the village to extend the waiver to at least the end of the year; the village declined, arguing doing so “would not be in the public interest.”
“When we signed that, although we had some skepticism,” mayor Sayre said in the recent property association meeting, “we waived that in order to give the authority some leeway.”
At an LGC meeting earlier this month, Secretary of State Elaine Marshall cautioned the legal implications the right-of-first-refusal revelation placed on the commission: Which document trumps the other? The authorized 2017 legislation, or a public-private 1999 agreement?
State Treasurer Dale Folwell, who has welcomed the village’s position in negotiations thus far, said he hadn’t heard of this legal arrangement until a few days prior. “I want to be crystal clear with you: I didn’t know there was a clock,” he said in the LGC meeting. Still, Folwell said the questions posed have introduced much-needed sunshine to a deal that previously lacked transparency.
The village put forth dozens of questions to the LGC regarding the authority’s proposed purchase, of which only four were deemed necessary to be answered. Thirty-three were deemed either irrelevant to the LGC’s review or were already answered.
“This is bothersome to me to learn that there is a timeclock deadline and there have been a lot of questions asked that are going to take a lot of time to answer that push our back up to the wall,” Marshall said. “I mean, playing out the clock is not really a very fair way of dealing, if that’s what all of these miscellaneous questions are intended to do.”
Meanwhile, the authority hired a new appraiser for $17,000 last month to remedy concerns about the system’s valuation. This week the authority adopted its new budget, including just three months of budgeted revenues and expenses, anticipating an end-of-August transaction date.
The village expects the LGC to review its bond issuance proposal on Aug. 3, according to the notice to regulators.
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