As five Wisconsin school districts face increased pressure to return millions of dollars in loans, the $200 million in investments they undertook with money from that debt are almost entirely without value and unlikely to pay back when they mature in 2013, according to representatives for the districts.
The districts said in a statement to the Journal Sentinel that one of the investments had stopped paying interest two months ago after a dramatic decline in value. The statement did not indicate which investment had ceased paying interest, but one of the schools’ attorneys, Stephen Kravit, had earlier identified it as an investment devised by the Royal Bank of Canada known as Sentinel Limited Series 2.
The five districts involved – Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay – invested $115 million in Sentinel 2 through trusts, using a combination of existing assets or borrowed money.
The $10 million invested by Whitefish Bay and $5 million by Kimberly were the entire amounts they invested in complicated transactions undertaken in 2006 on the advice of bankers from Stifel, Nicolaus & Co. Inc. The West Allis-West Milwaukee and Waukesha districts invested $40 million each in Sentinel 2 and Kenosha invested $20 million.
Madison’s Assistant Superintendent for Business Services, Erik Kass, formerly worked for the Waukesha School District.