ATLANTA -- Brevard County, Fla., commissioners met yesterday in an emotional public session to reconsider their decision to hold a voter referendum on a $23 million certificates of participation deal sold in 1989.

The commissioners, who by press time had not voted on whether to cancel the March 1992 vote, had called for the referendum last month following complaints about building defects in the county's recently-completed operations center, which had been funded by proceeds from the COPs.

The decision to hold the referendum had been met wih an extraordinary round of warnings from municipal bond rating agencies, insurers, and investment bankers. They predicted that the county could be downgraded, denied credit enhancement, and forced to pay substantial premium on future isues if it goes through with the referendum and reneges on the 1989 lease, and allowed the issue to default.

According to Richard Wagner, the county's financial adviser and chief executive officer of Southeastern Capital Group, about 90 citizens asked to be heard by the commission.

Many of those citizens, he said, decried the fact that the county had entered into the lease for the government center without putting the issue to a vote. But by a 2-to-1 margin, he said, the citizens indicated that whatever the merits of a referendum in 1989, an after-the-fact vote on the lease deal would have a negative effect on the county's financial standing.

Only one municipal bond industry participant spoke at the meeting, he said.

John W. Illyes Jrs., an analyst with John Nuveen & Co. in Chicago, said that Nuveen had invested in the county's COP issue but would not make any further investments in the county's debt if it voided the 1989 lease.

The latest warning to the county on the effect of holding a referendum was sent last Friday by the the National Federation of Municipal Analysts in a letter by Mary Jo Ochson, chairman of the group's Board of Governors and Richard A. Ciccarone, chairman of its Standard's & Practice's Committee. The organization's 600 bond anslysts and buyers saw the board's earlier decision in September to let voters decide on whether or not to terminate the county office building lease backing and underlying the 1989 certificates issue "in an extremely negative light."

"While we prefer voter support for debt financings prior to the sale of securities, we believe that the proposal to submit the issue to voters three years after the COPs were sold is inappropriate," the analysts wrote.

"To void this commitment now would be a strong signal to the bond market that Brevard County obligations are unreliable," the analysts said, adding that investors will "take this into consideration when new capital improvement project financings are needed by the county in the future."

The analysts' letter came as the county board heard from citizens groups who supported going through with the scheduled referendum on the lease, which is set for March, and who complained that the county board did not invite citizens to vote on or participate in its original decision to issue the certificates.

The analysts' detailed comments on the issue followed explicit warnings by Standard & Poor's Corp. and Moody's Investors Service to the county in recent days that any decision to abandon its lease commitment could result in a downgrading of the county's outstanding bonds and lower ratings on future issues.

The analysts' action also is the latest sign that the "demand side" of the municipal bond industry is focusing on the Brevard incident as a test case of its power to prevent lease defaults or -- in a worst case scenario -- penalize issuers for what they see as the growing possibility of such default.

Standard & Poor's included an article in its first issue of CreditWeek Municipal on Monday, saying that the Brevard case was indicative of a trend toward lease defaults among small borrowers nationwide that stems from their inexperience with lease securities and budgetary difficulties brought on by the recession.

The analysts' letter estimated that the county would have to pay a yield as much as one percentage point higher as a result of any decision to abandon the lease issue.

But the letter went beyond previous warnings issued by ratings and insurance agencies in insisting that the county should disclose any lease default in the future in its offering statements.

"Broken leases on capital projects are considered by analysts to be equivalent of defaults for disclosure purposes. Therefore, we would expect full disclosure to be made of the matter in any future bond offering should a non-appropriation take place," they wrote.

The analysts reminded the board that despite discontent in the county with defects in the new office building financed with the certificates, its lease contract does not permit it to terminate the lease because of those defects. The only contractual basis for getting out of the lease, they pointed out, is damage or destruction of the building.

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