A letter on Friday announcing the Treasury secretary's intent to buy the U.S. Postal Service's entire $3 billion debt offering does not rule out that the debt can be callable.
Treasury Undersecretary Jerome H. Powell wrote in the letter to Postmaster General Marvin T. Runyon: "As part of this consultation and prior to our actual purchase of these obligations, we will require a satisfactory opinion from your general counsel that the proposed transaction is in accordance with all applicable laws."
The letter followed correspondence a day earlier to Powell from Deputy Postmaster General Michael S. Coughlin that said the Treasury cannot dictate to the Postal Service when it comes to selling debt.
The Postal Service wants the flexibility of issuing outside the Federal Financing Bank, a financing arm within the Treasury. In recent years, the Treasury has made a tradition of not accepting callable debt. The Treasury has opposed the Postal Service's bid to sell debt in the capital markets instead of to the bank.
Coughlin wrote, "I see nothing in the language of the Postal Reorganization Act, the FFB Act. or their respective legislative histories, that gives the Treasury the right to dictate the terms and conditions of any obligation sold by the Postal Service to the Secretary, the FFB, or to other parties."
The letter added, however, that the Postal Service has never contested the Treasury secretary's right of first refusal when it comes to Postal Service debt offerings.
"The secretary has the right to be notified of our intent to issue obligations, to be consulted on the transaction, and to negotiate about the rates and terms, if he is considering a purchase," the letter says. "It simply does not extend to an absolute right to dictate terms."
The Postal Service has borrowed from the federal financing bank since Congress created the bank in 1973. But last week, the Postal Service's board of governors approved the issuance of the callable bonds and began the 15-day advance notification process of the Treasury Secretary as required.
Asked how the Postal Service would proceed if the Treasury refused the callable debt but also tried to block it from selling the debt elsewhere, a Postal Service spokesman said the Postal Service would wait to see what the Treasury offers first.
In August, former senior Assistant Postmaster General Comer S. Coppieopposed Treasury requirements in testimony before the House postal operations and services subcommittee. "The interests of the postage-paying public have been sacrificed to the Treasury's insistence on maintaining structures, which although simple, have grown progressively out of date," he said.
Powell told the same subcommittee, "The Treasury is concerned that the government's overall costs would increase if the Postal Service obtained these services in the private market."
Deal Pulled?
Asked to comment on high-yield market rumors that United Gas Pipe Line would cancel its two deals totaling $250 million, Beth West, a spokeswoman for the company replied:
"We are continuing to assess the market and looking at our financial alternatives. No definitive decision has been made."
She confirmed the company's proposed offerings as $25 million of senior notes due 1999 and $125 million of senior notes due 2002. Both are being handled through Salomon Brothers Inc.
In secondary trading Friday, high-grade bonds finished largely unchanged. High-yield bonds surrendered 1/2 point, pushed lower by Treasury and stock market troubles and a heavy new-issue calendar.
Republic National Bank of New York issued $200 million of 4.75% bank notes due 1995. The noncallable notes were priced at 99.75 to yield 41 basis points over comparable Treasuries. Moody's Investors Service rates the offering Aal, while Standard & Poor's Corp. rates it AA. Lehman Brothers managed the offering.
