LOS ANGELES -- Bank of America on Friday withdrew its proposal to work on the Los Angeles convention center financing, citing concern over the underwriting selection procedures, and instead proposed that the city conduct a competitive deal instead.
Meanwhile, officials at Grigsby Brandford & Co., the proposed bookrunning manager, yesterday strongly derided any suggestion that the firm gained its appointment on anything other than merit.
Bank of America's withdrawal was in response to the Los Angeles Convention and Exhibition Center Authority's 10-to-1 vote on Wednesday in favor of Grigsby Brandford as bookrunner and Goldman Sachs & Co. and PaineWebber Inc. as co-senior managers a certificate of participation refunding that could reach $400 million.
An evaluation committee made up of city staff members, financial advisers, and convention authority members had unanimously recommended Goldman Sachs & Co. as the bookrunner, with Grigsby Brandford and Bank of America as co-senior managers. The committee recommended PaineWebber as a co-manager.
Some market participants said they had heard that Bank of America had sent a letter to the city about its withdrawal from the process.
The sources said Anthony Taddey, director of Bank of America's municipal securities group, sent the letter Friday to Keith Comrie, the city administrative officer.
Taddey yesterday confirmed the bank withdrew from the underwriting process. When asked if the handling of the underwriting selection process played a role in the bank's withdrawal Taddey said, "Yes."
He confirmed that the bank suggested in the letter that the city should sell the convention center refunding bonds on a competitive rather than negotiated process.
"We feel the letter is self-explanatory, and we have no other comment at this time," Taddey said.
Copies of the letter were circulated to other city officials, including members on the city council, sources said. City officials declined to release a copy of the letter, and they refused to comment on the bank's suggestion that offering be competitively bid.
The final underwriting team still faces further review, and a council finance committee is expected to take the matter up next week. The full council must approve the team.
One source who knew about the letter said the bank expressed concern over whether the authority's decision reflected a fair and objective process, and whether there was a sound reason for demoting the bank after it had attained the evaluation committee's recommendation for a co-senior slot.
In an interview yesterday, two principals of Grigsby Brandford discussed the selection procedure at length, saying they believed that some of the selection criteria used by the evaluation committee did not reflect their firm's strengths in handling certificate of participation financings.
Calvin Grigsby, president and chief executive officer of the firm, and Napoleon Brandford 3d, the vice chairman, said they initially competed for the bookrunning slot because of the firm's experience in handling similar COP financings.
But both men contended yesterday that some of the criteria used by the evaluation committee did not necessarily "reflect actual experience" that could be germane to the upcoming refunding, Grigsby said.
For example, committee rankings that only took into account senior managers on overall long-term fixed-rate refundings, or on COP and lease-revenue financings of more than $200 million, tended to place Grigsby lower than the other six firms interviewed for management slots, the Grigsby Brandford bankers said.
Yet other data, such as rankings of lead managers for long-term California COP issues in the first quarter of 1993, reveal the firm at or near the top of rankings, they said.
Grigsby said authority members responded positively to such information, and said they were also impressed that the firm has handled large COP deals that were priced competitively with other issues in the market.
Grigsby and Brandford also disagreed with the notion that being a black-owned firm swayed the authority's stance.
Furthermore, they said it might be different if they had never handled COP deals or worked on any issue of size, they said.
"We have incrementally built up to this" by senior managing progressively larger deals for various issuers, said Grigsby, who stressed that the firm also is familiar with Los Angeles because of past experience through financial advisory and underwriting work.
Grigsby said his firm initially carved out a niche more than a decade ago by winning lease-purchase deals through a competitive bidding process. "Nobody knew we were a minority-owned firm; it wasn't an issue." he said.
The bankers also criticized suggestions that they gained undue influence by retaining a former city councilman and former city attorney to, assist them in preparing presentations for the authority.
Grigsby said he strongly disagreed with characterizations that the approach represented "bare-knuckled lobbying." He said Grigsby Brandford believes it is valuable to have former officials who understand the city's administrative process and can ensure the firm makes its best presentation possible, especially when a firm has to make a pitch that raises different perspectives than those contained in a staff recommendation.
"You're telling me I'm a bad guy for making a presentation at an authority meeting to make my case," Grigsby said, adding that that is simply part of the open process the city uses to select a team.
Grigsby said some firms also try to raise "a scare factor" against his firm by suggesting it entailed too much risk to use a smaller firm as the bookrunner.
Gerry Miller, a city finance specialist who served on the evaluation committee, said the competing firms' level of capital was an ancillary factor that had little influence on the committee's selection process.
One item that did raise some committee concern about the Grigsby proposal was a conceptual error. that produced a lower present value savings figure than other firms, Miller said.
Grigsby said his firm produced savings numbers that were competitive with other firms, but then obtained the present value figure with "different conventions" than those used by the committee.
Once that difference was addressed, however, Grigsby noted his firm ranked fourth out of seven firms, with only 14 basis points separating the top four.
That item has been blown up out of proportion, Grigsby said, especially use "nobody awards" posts simply based on proposed present value savings.
Officials at PaineWebber and Goldman Sachs could not be reached for comment.