Guam High School Builder, Operator Declares Bankruptcy

admin's picture

Impact on JFK contract yet unclear

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, May 13, 2015) – Guam Department of Education officials were silent as of press time yesterday on how John F. Kennedy High School might be affected by the bankruptcy filing of its builder and facilities maintenance contractor.

International Bridge Corp., the company that won the bid to rebuild the school and maintain its facilities for the next 25 years filed for bankruptcy reorganization May 7 in federal court at the business' base in Kansas.

Along with its bankruptcy filing, IBC filed an emergency request for cash payments from GovGuam for the maintenance of JFK High to be spared from immediate garnishment for unpaid taxes and other debts.

IBC owes $9.2 million in taxes to the IRS and $4.8 million in business taxes to the government of Guam, the company stated in the U.S. Bankruptcy Court's District of Kansas.

IBC needs the cash from GovGuam freed up because it needs to pay a subcontractor for the maintenance work at the high school, certain wages and other costs to keep the business running and its service to the school going, its bankruptcy filing states.

The company filed for bankruptcy under Chapter 11. The filing allows it to reorganize, pay creditors in installments and possibly sell assets to pay its secured debts.

$16 million in debt

The company had $66.50 in its bank accounts at the time of the bankruptcy filing. It listed more than $14 million in assets, comprised mostly of expected payments from past construction contracts, but had estimated debts of more than $16 million.

IBC won the JFK High construction and maintenance contract in 2009, in large part because of how GovGuam viewed its financial picture at the time. Financing made up the 70 percent of the evaluation criteria, GovGuam bid documents show.

The contract was worth $65 million at the time it was started, but with interest payments factored in, GovGuam would end up paying about $202 million by the time annual lease payments end, GovGuam audit documents show.

Lease and additional rent payments for the JFK contract cost GovGuam more than $7 million a year and would continue for the next 25 years, GovGuam audit reports show.

Guam Community Foundation Inc. protested GovGuam's selection of IBC for the JFK contract, arguing IBC wasn't the lowest bidder. The protest was dismissed after the contracting agency -- the Department of Public Works -- stated it wasn't going for the lowest price.

A phone call left with the JFK High's administration office was not returned as of press time. An email to Guam DOE wasn't returned and calls to the cell phones for Superintendent Jon Fernandez and Deputy Superintendent Robert Malay weren't answered.

Tax liens

The Internal Revenue Service filed a notice of tax lien against IBC in 2011 for about $4.4 million in alleged taxes owed. On March 12, GovGuam filed a tax lien against IBC for unpaid business privilege tax of about $4.8 million, the company's bankruptcy filing states.

The company's tax debts with the IRS and GovGuam "are secured by all of the property of the debtor, but specifically -- for the purpose of (the emergency motion) -- the JFK contract," the bankruptcy filing states.

IBC has ceased doing construction projects, but previously was involved in the Kilo Wharf extension project at the Navy base on Guam, its bankruptcy filing states.

"Its main business now is fulfilling a service and maintenance contract for John F. Kennedy High School on the island of Guam," states IBC's bankruptcy filing.

For the JFK High School maintenance contract, IBC hired a subcontractor, General Pacific Services, to do the job, court documents state.

The wife of IBC President Robert Toelkes, the sole owner, owns the subcontractor that maintains JFK High, the bankruptcy filing states.

IBC also collects a 10-percent fee for facilitating the services that the school maintenance subcontractor provides, its bankruptcy filing states.

In its emergency motion with the bankruptcy court, IBC states it has an "immediate and critical need" to use cash from GovGuam's payments for the John F. Kennedy High School lease.

GovGuam payments first go to a trustee for Capital Projects Finance Authority, or CAPFA, which is registered as nonprofit based in Moore Haven, Florida.

The Florida nonprofit describes itself on its website as the "nominal owner of the John F. Kennedy High School on Guam."

Through the Florida nonprofit, municipal bond investors financed the project to demolish JFK, renovate existing structures and build additional structures. The investors are issued what's called certificates of participation -- basically IOUs -- that promise to repay them with an annual interest rate of between 5 percent to almost 7 percent, a GovGuam audit report shows.

The profit investors make from the Guam project is tax-exempt, with the help of GovGuam's role as "conduit" for the issuance of the public debt.

Through the Guam Economic Development Authority, this financing mechanism has also been used for other debts related to building or renovating other Guam public schools.

In the case of the JFK project, GEDA sent representatives to New York to meet with potential investors to assure them that GovGuam was involved with IBC's financing and to encourage them to invest in Guam, an audit report states.

Only when GovGuam makes full payment of the annual lease -- the last payment is due December 2040 -- will the title of JFK High will go back to the government of Guam.

Rate this article: 
No votes yet

Add new comment