The chairman of the Municipal Assistance Corporation for the City of New York yesterday breathed new life into a beleaguered $1 billion, five-year bailout plan for the city. But a strict deadline and strings are attached to the plan.
In a corporation board meeting yesterday morning, Felix G. Rohatyn, chairman of the corporation, released a memorandum that lists what the city and other entities need to do to get the sale moving.
Yesterday was the first time the chairman had publicly presented a written outline of his demands in regards to this bond sale. The announcement also provided the first glimmer of hope for the deal since it was put on hold in the spring.
Earlier this year, the corporation had proposed refuncing $1 billion of outstanding first resolution bonds to raise about $1 billion for the city. The financing plan would provide the city with $315 million fiscal 1992, which began July; another $315 million in each of fiscal 1993 and 1994; and $55 million in fiscal 1995.
The bailout plan was put on hold after Standard & Poor's Corp. threatened to downgrade city bonds. The rating agency, which has kept its A-minus rating on the city's bonds through turbulent budgetary times, objected to the refunding as a one-shot revenue gainer.
During the meeting Mr. Rohatyn suggested that arrangements could be made to satisfy Standard & Poor's.
Mr. Rohatyn listed a number of other steps he considers necessary. The corporation's board seeks "satisfactory assurances" from the city and the corporation's underwriters that the city has normal access to the financial markets and that the refunding will harm neither the city's nor the corporation's full and free access to those markets.
The board also wants assurances from the bond rating agencies that the corporation and the city will retain their investment grade ratings.
And the board, in what appears to be a modified version of an earlier request, seeks from the Financial Control Board assurances that, in its judgment, the city has a credible plan to restore the four-year financial plan to restore the four-year financial plan to structural balance and that the refunding would fit in with that plan.
The memo says that by stretching out first resolution debt repayments, the refunding would generate $1 billion by using $200 million of funds, previously earmarked for debt acceleration, as an "equity" contribution to the transaction; a net capital reserve release; and the rescheduling of first resolution principal payments.
The refunding, however, is not without cost. It will add about $100 million a year in debt service from fiscal 1996 to 2008, or $500 million net additional interest costs, the corporation memo says.
The refundding must also take place before Dec. 31 to realize the entire $1 billion of budget relief, according to the memo. After that date, the legal requirements necessary to defer the $190 million million principal payment on the bonds -- now scheduled to be paid Feb. 1, 1992 -- cannot be assured.
Yesterday Hyman G. Grossman, a managing director with Standard & Poor's and one of the major critics of the billion dollar bailout plan, said of Mr. Rohatyn's suggestions: "I can't comment. If he has a presentation we will review it. But he hasn't presented us with anything yet."
He noted that, "The mayor and the city administration should look at the city comptroller's report that talks about attrition. And nobody is paying any attention to th Financial Control Board report about structural balance."
For the Financial Control Board, Cathy A. Bell, its general counsel, said, "I am not sure that formal request has been made to the FCB board" about giving assurances to the corporation about the city's financial plan.
In a report released on August 1, the control board said the refunding, absent other significant changes in the financial plan, "would balance budgets but not produce structural balance."
Philip R. Michael, director of the city's Office of Management, said the memo "is very consistent with what has been going on all along. It is not troubling."
To avoid the wrath of Standard & Poor's and possibly to put pressure on the state and unions, city officials did not include the proceeds of a corporation refunding in the adopted fiscal 1992 budget. But neither the state nor the labor unions have been very forthcoming on either front since the adoption of the budget on July 2.
