Controversial Refunding For Atlanta Is Stopped; Reduced Savings Cited
DALLAS -- Mayor Maynard Jackson has stopped a controversial $85 million refunding for the Underground Atlanta project amid concerns that actual savings would be a fraction of original estimates.
But the decision also means the city had to make a $2.6 million Oct. 1 debt service payment that would have been deferred until 2001 under the proposed refinancing.
The deal had raised concerns on Wall Street.
Marcy Edwards, vice president and manager of Southeast ratings at Moody's Investors Service, yesterday declined to discuss reports that the agency warned the city that its double-A rating -- assigned since 1938 -- might have been jeopardized by the transaction. She did say Moody's was not comfortable with the proposed restructuring: "Our policy is that on a debt refinancing we don't like to see a postponement of the principal payment."
The mayor originally supported a plan to refinance the 1986 bonds for the Underground Atlanta project because of projections that it would provide $4.4 million in savings and delay annual debt service payments for a decade.
"The justification for the bond deal has gone away, and we want to continue our pattern of fiscal conservatism in the best interests of our taxpayers," Mayor Jackson said in a statement issued Wednesday. "Once the transaction was restructured by the city's finance team, it became clear that the originally anticipated savings were reduced to the extent that the transaction became unattractive."
The city expected a savings of $4.4 million, but it found the benefits would be a less optimistic $900,000. The deal was to be underwritten by a team senior managed by Clayton Brown & Associates Inc. and Pryor, McClendon, Counts & Co. The financial adviser on the project was Ward & Associates of Atlanta.
Critics of the proposal had pointed out that the city financing team included firms whose key executives were political backers of the mayor, who is a former bond lawyer. In a response to his critics, the mayor noted in his statement that no one would profit if the transaction were stopped, noting, "No bond deal, no fees."
But the delay in the deal also complicates the budget-writing process for Atlanta. The city now expects to end fiscal 1991 on Dec. 31 with a $3 million operating deficit in its $452 million general fund budget.
The refunding would have saved the city the $2.6 million it paid to bondholders this week if the refunding had been done.
The 1986 issue, sold by the city's Downtown Development Authority, was backed by a pledge from the city to make up any shortfalls on debt service payments not generated by the shops and businesses in the downtown entertainment center.
The arrangement is known as a contract general obligation bond issue, an instrument similar to a lease revenue arrangement but specifically unique to Georgia issuers.
Even though the city apparently will not be able to defer future debt service payments, city officials expect to balance their budgets.
"We've had a substantial improvement already this year," said Michael Bell, the city's new chief financial officer. Earlier this year, the city was projecting a $15 million operating deficit; he now estimates it at about $3 million.
The city has seen a slight improvement in revenues over earlier projections, but Mr. Bell said most of the savings were the result of tight control of overtime payments and a hiring freeze.
In June, the city sold $22 million in general fund tax anticipation notes in its first foray into the short-term market.
"We've had some concerns about fiscal pressure," said Hyman Grossman, managing director at Standard & Poor's Corp. "The need to access the short-term market was a red flag for us."
The agency plans to meet with city officials in mid-October to discuss its double-A rating and the outlook for Atlanta. "We have some concerns, but we don't see it triggering a rating change," he said.
