LOS ANGELES - An intense war of words is expected to continue among some investment bankers as they wait for a city council panel to consider the recommended team for a Los Angeles convention center refunding.
The continuing battle is an outgrowth of complaints over the tactics used by some bankers in trying to gain the coveted posts during the underwriter selection process.
The City Council's finance committee is next in line to review an underwriting recommendation by the Los Angeles Convention and Exhibition Center Authority for a convention center certificate of participation refunding that could exceed $400 million. The committee meets every Tuesday, so it appears June 8 is the earliest the committee can review the recommendation.
Gerry Miller, a city finance specialist, said no date has been set by the committee.
Competition is expected to intensify as investment bankers try to sway the committee's stance, especially because emerging details about some firms' attempts to sway the authority increasingly paint a picture of sniping and in-fighting among bankers.
At a May 12 meeting, the authority voted 10 to 1 to recommend Grigsby Brandford & Co. as the bookrunning manager, with PaineWebber Inc. and Goldman Sachs & Co. as co-senior managers. An evaluation committee made up of city staff members, financial advisers, and two authority members had unanimously recommended Goldman Sachs as the bookrunning manager, with Grigsby Brandford and Bank of America as co-seniors. The committee had recommended PaineWebber as a co-manager.
The authority decided to elevate PaineWebber to a co-senior slot, while assigning Bank of America to a co-managing position.
Two days after the authority's vote, Bank of America withdrew its proposal to serve as an underwriter, setting forth reasons in a letter to Keith Comrie, the city administrative officer. Bank of America recommended the sale be held through a competitive offering instead.
"Given the irregularities in the authority's selection process that occurred after the rigorous process undertaken by the review committee, Bank of America is expressing our grave concerns about the fairness and objectivity of the process," Anthony J. Taddey, director of the bank's municipal securities group, said in the letter, copies of which were sent to Mayor Tom Bradley and members of the city council.
The Bank of America letter specifically complained about some firms' use of professional lobbyists who "made substantial efforts" on the behalf of the firms "to influence this decision."
Bank of America also expressed concern about "a previously undisclosed agreement" between Grigsby Brandford and PaineWebber that was discussed during the authority's May 12 meeting.
That agreement was mentioned in a letter, dated May 10, from PaineWebber to the authority. The letter was signed by Stephen L. Hicks, a managing director in PaineWebber's San Francisco office.
In both the letter and at the May 12 authority meeting, Hicks strongly backed an appointment of Grigsby Brandford as the bookrunning senior manager.
During a presentation to the authority, Hicks said, "There's no question" Grigsby Brandford is qualified to be the senior manager, although due to competitive reasons among investment bankers "none of us will want to say it."
Hicks' letter also expressed concern about "questions raised by [city administrative office] staff relative to the adequacy of the financial strength of Grigsby Brandford to act as book-running senior manager of this issue." The letter added that "we find them entirely capable of handling this issue."
Near the end of the letter, Hicks disclosed that PaineWebber had entered into an agreement with Grigsby "in order to eliminate any concerns which may be held by members of the authority or its staff."
The agreement specified that PaineWebber would "become jointly responsible with Grigsby Brandford in this issue," the letter said, and also provide "consultative assistance" if Grigsby served as bookrunner, including "making available any derivative products" that may be appropriate.
According to sources, other investment bankers were irritated by PaineWebber's disclosure of the agreement because they believed it constituted an enhancement, which is information that could not be considered by the authority at that point in the selection process.
When an authority member asked for more details about the agreement, Hicks said he did not believe the agreement represented a "changing of our original proposals." Hicks said the agreement "is independent of any decision you make here."
Pete Echeverria, a city attorney at the meeting, was asked to clarify if the agreement was in fact an enhancement that the authority could not consider.
"It might be to the extent that any representation of that kind gives added strength to either one or both of the firms. That would be an enhancement and you should not be considering that as part of your deliberations," he responded.
Echeverria added that "I guess I would admonish you that legally you should not be considering that information in making a decision."
The matter arose again later in the meeting, when the authority temporarily mulled a motion to have only two senior managers, with Grigsby as bookrunner and PaineWebber as a co-senior.
One commissioner, Robert Mallicoat, expressed concern that the motion suggested that the authority was giving credence to an underwriting arrangement "that we were told that we can't consider."
The commission subsequently added Goldman Sachs as a co-senior, and Mallicoat was the only commissioner to vote against the authority's final recommendation.
Hicks asked the authority to consider appointing PaineWebber as a co-senior manager because of PaineWebber's past experience in serving as bookrunner on convention center deals in 1989 and 1990. Hicks said he considered the evaluation committee's criteria for choosing underwriters "faulty" because it failed to consider a firm's "knowledge of the specific project at hand."
Among other things, Hicks also highlighted PaineWebber's commitment to working with minority-and women-owned firms in underwritings.
In his letter to the authority, however, Hicks also went a step further by raising questions about a competitor's track record in this area.
Hicks, citing certain issuers, said they were happy with PaineWebber's financings in terms of participation by minority- and women-owned firms.
"On a recent [Los Angeles County Transportation Commission] financing, however, Goldman Sachs cannot make the same assertion," Hicks wrote in the letter to the authority. "Goldman went out of its way to do everything it could to undermine" that issuer's allocation policies for minority- and women-owned firms, Hicks wrote.
When asked about PaineWebber's assertion Friday, a top official of Goldman Sachs disagreed with that claim.
"I don't know why they would make such a comment since [Goldman Sachs] actually exceeded the requirements established by the LACTC" regarding such allocations, said Garland E. Wood, a general partner of Goldman Sachs.
Les Porter, deputy executive director of the Los Angeles County Metropolitan Transportation Authority, the successor agency to the commission following a merger, said Friday, "I don't want to comment on the specific reference to Goldman Sachs" made in the PaineWebber letter.
On recent deals, however, Porter said that "we get the results we're looking for," and usually better, in obtaining a goal of at least 25% participation by minority- and women-owned firms in underwritings.
The last commission deal senior managed by Goldman Sachs was in 1991, according to Porter, and "we exceeded the target approved by the commission" for minority- and women-owned participation.
Porter noted that it is the commission's "clearly articulated" policies that help produce results in this area from all underwriters. "No one volunteers to give up business," noted.
Hicks did not return a phone call for comment on Friday.
Arthur Snyder, a former city councilman who has represented Grigsby Brandford as a lobbyist during the selection process, wrote a letter to Comrie earlier in May and complained about "what appears to be a series of major misrepresentations of facts" regarding Grigsby's proposal.
Comrie replied in a May 11 letter that Grigsby's proposal "has been fairly presented and has not been misrepresented either intentionally or unintentionally." Comrie concluded that the recommendation of the review committee "continues to be in the best interests of the taxpayers of the city."
If the recent jockeying by firms to gain valued underwriting slots is any indication, market sources said Friday that the competition among investment bankers can only intensify as the city council prepares to review the convention center recommendation.