Budget Mess Memories Force New York City To Try Negotiated Sale

The memory of last spring's state budget imbroglio has spurred New York City officials to sell $1.25 billion of revenue anticipation notes through negotiated offering, rather than its traditional competitive auction, a city official said Friday.

"Investors continue to have some questions based upon the experience of the Rans sale last spring," said Michael W. Geffrard, deputy executive director of the city's Office of Economic Development.

"While successful, [the sale] was somewhat chaotic because of the wait for the state budget," he said. The city had sold Rans in the fall of 1990 that were due June 1991 and secured with state aid.

The final state aid payments, however, faced potential delay if state lawmakers did not pass a budget by April 1, the beginning of the state's fiscal year. As a result, the city had to sell additional Rans, also secured with state aid, in the spring to cover expenses normally paid by the state.

Investors feared the city would default on all the outstanding Rans because the state budget might not be in place when all the notes came due on June 28. The notes were eventually paid on time.

"We wanted the additional time to time the sale and do more investor outreach," Mr. Geffrard said of the decision to go negotiated, adding that the choice also allows city officials "to be able to make the additional effort to assure investors."

City officials quietly conducted a special underwriting selection process for the note syndicate, reviewing the five firms that serve as senior manager of the bond syndicate. City officials also asked the bankers to share any ideas on how to structure and sell the Rans, Mr. Geffrard said. Goldman, Sachs & Co. was named bookrunner and co-senior manager and Bear, Stearns & Co. was named a co-senior manager.

Mr. Geffrard declined to pinpoint the ideas because they were still being discussed.

The notes, slated for sale the week of Oct. 7, would be dated to mature June 1992. The city's last note sale was a $1 billion offering of tax anticipation notes in August through a competitive auction.

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