Niagara Falls, N.Y., yesterday priced the second piece of an $80 million issue of negotiated general obligation "story" bonds for a new water treatment plant to be built as the result of environmental litigation.
Occidental Chemical Corp. has agreed in a settlement to pay construction and debt service costs for relocating a plant, company and city officials said.
Occidental had been in litigation for years with the U.S. government, the state government, and the city of Niagara Falls over a toxic waste dump site. The current water treatment plant abuts the site contaminated by Hooker Chemical Corp., now Occidental Chemical.
"These are the same people who brought you Love Canal," said city administrator Thomas C. Lizardo. "Occidental Chemical has agreed to pay over 20 years a little more than $64 million to be used toward the construction and debt service relative to the construction of a drinking water treatment plant."
Bonds for the project were split into two series of $40 million each. The first series is subject to the alternative minimum tax because it represents Occidental's participation in the project.
The second piece, priced yesterday, is tax-exempt. It is financed by the city and uses level principal and interest payments allowed under a new state debt reform law.
"Occidental's payments to the city are viewed by bond counsel effectively as a private loan, even though Occidental doesn't own the plant in any way," said Robert Taylor, a senior vice president in investment banking with Lehman Brothers, which was senior underwriter for both series. "The city's general obligation is the underlying obligation of the credit, not Occidental."
While the cleanup of the site is not directly related to the Love Canal contamination, that environmental disaster continues to haunt Niagara Falls with lawsuits that have harmed the city's credit ratings.
Lizardo said Love Canal's connection with this bond issue is related to "ongoing questions about the city's creditworthiness relative to suits over Love Canal."
Niagara Falls has an underlying rating of Baa from Moody's Investors Service. The city's uninsured debt is not rated by Standard & Poor's Corp. Both bond series for the water treatment plant are rated triple-A because they are insured by Municipal Bond Investors Assurance Corp'
In a Dec. 5 credit report, Moody's said the city is "subject to numerous claims for Love Canal, a former chemical waste burial site used by Hooker." The initial total amount of damage claims was $1.5 billion, Moody's said.
The Moody's report also stated that suits pending against the city have been settled, "with all costs paid by insurers."
Participants in the deal said bondholder concerns about the litigation have been satisfied.
"Most of this has been taken care of legally, which is why we were able to get MBIA insurance on this deal," said Larry Turtle, financial adviser to the city of Niagara Falls. "The Love Canal situation was the driving force behind the deal going negotiated: It was a story bond."
Said Taylor of Lehman Brothers: "From rating agency and insurers' standpoint, concern about the litigation is a nonissue. It's been wrapped up."
In fact, said Taylor yesterday, Lehman has already sold almost all of the second series. "There was strong bond fund interest in some of the maturities," he said.
The true interest cost to Niagara Falls for yesterday's entire issue was 6.93%, Taylor said.
PaineWebber Inc. and Roosevelt & Cross Inc. were the other managers in the syndicate.
