Lingering questions about Philadelphia's fiscal health made the private placement of its $150 million of taxable and tax-exempt deficit notes slow going yesterday, officials involved in the transaction said.
By the end of the day, orders for about $90 million had been placed, said Denis J. Carlson, a managing director with A.H. Williams & Co., the underwriter of the offering.
The notes, due May 12, 1992, were put on the selling block Tuesday evening. The $60 million of taxable notes were tentatively priced at part to yield 8.50% and the tax-exempt notes were priced at par to yield 7.50%, he said.
Investor questions about the city's fiscal health, the underlying security of the notes, and the legal recourse investors have in the event of default made it a slow process as the underwriter and city officials attempted to find satisfactory answers, Mr. Carlson said.
"If we had had an investment-grade rating, it would be a lot easier," he said. Because of the unrated and uninsured status of the notes, the representatives from institutional investors -- especially the not-for-profit buyers -- had to consult with their boards on the investment, he pointed out.
Nevertheless, he said yesterday evening, the firm had received "fairly good responses." The order period is scheduled to expire today at 5 p.m., eastern standard time, he added.
About $50 million of the taxable notes have been sold to 14 not-for-profit hospitals and universities, he said. Another $10 million of the taxable notes were on the verge of placement toward the end of the day, he noted.
And about $30 million of the tax-exempt portion of the notes had buyers, he said. Pension funds and some corporations have expressed an interest in these securities, he added.
The tax-exempt yield on the Philadephia notes is about 300 basis points over the yields quoted yesterday on other state and local government notes.
In late secondary note trading yesterday, Los Angeles Trans were quoted at 4.5% bid, 4.40% offered. Texas Trans were quoted at 4.48% bid, 4.45% offered; and Pennsylvania Tans were quoted at 4.53% bid, 4.50% offered.
Also quoted yesterday were New York City Rans, at 5.10% bid, 5.00% offered, and The Bond Buyer's one-year note index was calculated at 4.70%.
The University of Pennsylvania was believed to have taken down a good portion of the taxable notes, sources said.
Philip Yarmolyk, an investment analyst with University of Pennsylvania, said the institution has not finalized its purchase of taxable notes and declined to disclose how much the university bought. He said city officials want to make an announcement on the purchase.
When asked why the university invested in the notes, he said, "We are patriotic Philadelphians."
Mr. Yarmolyk said that "by participating in this way, we may save money later on." He explained that if the city were to seek an increase of taxes or user fees, the university might be spared because of its generosity now. Helping the city is not a new practice, he pointed out, noting that the university has assisted the city in the past by prepaying its wage taxes.
Other not-for-profit investors included Blue Cross & Blue Shield and Drexel University, Mr. Yarmolyk said.
One not-for-profit investor that did not step to the plate for the notes was LaSalle University. David Fleming, LaSalle's vice president for business and treasurer, said, "We are in the city, and we have a vested interest in the health and welfare of the city.
"The problem was there was not enough time to satisfy the questions of my trustees," Mr. Fleming said. The trustees, for example, were concerned about whether the university would really have the legal right to withhold wage taxes if the city defaulted on the principal and interest payments on the notes.
The notes are secured by the city's wage tax, and in the event of default, investors would be permitted to hold their wage tax payments to the city in lieu of receiving interest and principal payments.
