FR-WC EDA Releases Media Statement on United Bank Loan Defaults

Below is the Front Royal-Warren County Economic Development Authority “Media Statement” on its Oct. 25 motion out of a two-hour closed session to accept defaults on two loans from United Bank in civil litigation brought by the bank. The involved loans, as reported in the Royal Examiner story LINKED below, were cited as the Leach Run Parkway loan ($702,192.70) and the Avtex Infrastructure loan ($2,954,770.41). It appears that both the Town of Front Royal and Warren County governments had legally agreed upon payment responsibilities on the two loans for EDA overseen economic development projects within their boundaries. However, beginning with the Town in 2018 followed by the County in May of this year, both municipalities have ceased to pay on those debts, leaving the EDA with minimal remaining assets holding the bag on those loans.

EDA Media Statement, October 30, 2024

The Board of Directors of the Industrial Development Authority of the Town of Front Royal and County of Warren, Virginia (the “EDA”) agreed at its monthly October Board meeting to enter into a consent judgment with United Bank relating to pending litigation. This litigation was initiated by United Bank against the EDA to recover outstanding amounts owed on two loans originated in 2018: one for the Leach Run Parkway project and another for the refinance of the Avtex Infrastructure project. The EDA agreed to the loans with the expectation that the Town of Front Royal and the County of Warren would assume funding responsibility for servicing the debt on these loans, and that the governing bodies for each would appropriate sufficient funds to do so. For the Leach Run Parkway project, the Town agreed to fund 34% of the debt and the County agreed to fund 66% of the debt. For the Avtex Infrastructure project, the Town agreed to fund 33% of the debt, the County agreed to fund 34% of the debt, and the EDA agreed to fund 33% of the debt.

For a period of time, the Town honored its funding share of the debt; however, beginning in 2018, the Town stopped making payments. To avoid a default by the EDA on the loans, the County continued to honor its funding share, and it also paid both the Town’s and EDA’s share. The County continued such payments through April of this year, at which time it stopped making loan payments, indicating it would resume payments if the Town resumed making its agreed upon payments.

The EDA relied on funding from the Town and County to service the debt on these loans, and without such funding, the EDA defaulted on the loans and United Bank accelerated and demanded payment of the loans in full. Because it did not possess the financial capacity to make loan payments and relied on the Town and County to fund those payments, the EDA through its legal counsel formally requested that the Town and County work with United Bank to resolve the loan defaults. Neither the Town nor the County responded to the EDA’s request and United Bank filed suit against the EDA to collect the full balance of both loans. Because the EDA was in default on both loans, possessed no financial capacity to make loan payments without funding from the Town and County, and because it had neither defenses nor the financial capability to successfully defend against United Bank’s claims, the EDA Board concluded it had no choice but to agree to a consent judgment.

The EDA Directors are making every effort to be good stewards of the EDA, as evidenced by the dismissal of its suit against the Town, its negotiation and agreement to enter into a forbearance agreement with First Bank and Trust, and its focused effort over the last year to sell assets for fair market value. Unfortunately, the Town provides no financial support for the EDA, and it recently passed a resolution demanding the EDA Directors take action to dissolve the Authority, notwithstanding that Virginia law prohibits such action until all EDA debt is retired. For now, while the County continues to provide operating funds for the EDA, the County does not provide either administrative or operational staffing support to the EDA, leaving the volunteer Directors to fend for themselves. If the Town and the County are serious about dissolving the EDA, which is well within their rights to do, then Town Council and the Board of Supervisors must take the necessary steps to address and resolve EDA debt.

A shorthanded FR-WC EDA Board of Directors, and yet to be replaced former County Director of Economic Development Joe Petty, seated by door to left, at the open portion of the Oct. 25 EDA monthly meeting prior to adjourning to closed session. From left at the meeting table are JD Walter, Chairman Rob MacDougall, Robert Cullers, and Dave McDermott. Below, a current image from the front page of the FR-WC EDA website.

Final Thoughts

Despite the Town’s withdrawal from support for, or direct involvement with the jointly created EDA as it attempted to assert a lack of operational liability in the circa 2014-2018 EDA ‘financial scandal’ despite its ongoing operational input throughout that period, including a four-month $10-million “bridge loan” facilitating a $10-million loan to the EDA from a bank skeptical of recipient ITFederal’s ability to achieve its proposed and now abandoned project at the Avtex site in town, legally it is still the FR-WC EDA. And as pointed out in the above Media Statement’s final paragraph, while the Town has “recently passed a resolution demanding the EDA Directors take action to dissolve the Authority” Virginia law “prohibits such action until all EDA debt is retired.”

EDA Cites County and Town Refusal to Pay Agreed Upon Amounts in Authorizing 2 Loan Defaults to United Bank