CHICAGO -- A group of Chicago aldermen yesterday delayed a final vote on a proposed $110 million refunding of defaulted Chicago-Calumet Skyway bonds.
The city council deferred the vote on the bond issue at the request of Alderman John Buchanan, who had the support of three other aldermen. A vote on a city council ordinance can be deferred with the support of two aldermen.
In an interview, Buchanan, whose ward includes, a portion of the skyway, characterized the bond issue as a "bailout" and said he wanted "better answers" about the skyway's future fiscal and physical condition.
The bond issue ordinance will be deferred until the next city council meeting scheduled for May 18. The city council's finance committee approved the bond issue a week ago despite objections from Buchanan and other aldermen.
The refunding bonds, which the city plans to issue later this month, would redeem $90.2 million of outstanding skyway bonds that have been in default since 1963.
Gail Niemann, Chicago's deputy corporation counsel, said that waiting until the next council meeting should pose no problem for the bond issue. "We believe we have the votes and that [the delay] will not be an obstacle to getting the bonds issued," she said.
Buchanan yesterday called on Chicago Comptroller Walter Knorr to search for, "until successful," the entire list of current skyway bondholders.
"If this is a bailout to satisfy some bondholders of renown, I don't think it's wrong for the entire city to know who these fat cats [are]," Buchanan said. "It's the public's right to know, and that's what I intend to pursue."
In addition, Buchanan said that the city's corporation council should take steps to recover a $2 million loan that the city made to the skyway in the 1960s to cover debt service. Estimating 5% interest on the loan, Buchanan said that the city should receive about $8 million.
If the bonds are issued, only the $2 million of principal would be paid to the city, according to city officials.
Meanwhile, attorneys for bondholders agreed yesterday to dismiss long-standing litigation against the city if the refunding goes forward and bondholders are paid.
At a status hearing in Chicago before U.S. District Court Judge James Moran, Niemann outlined the city's plan to use proceeds from the refunding to redeem outstanding skyway bonds at a price of 101% of principal by July 1.
Kimball Anderson, a partner at Winston & Strawn, the law firm representing bondholders, said that assuming the bond refunding plan is passed and after holders of the defaulted bonds are contacted, the lawsuit will be dismissed.
The refunding would make the lawsuit moot "because the old bonds will case to exist and the city will have fully paid" bondholders, Anderson said.
The only issue that remains to be resolved is about $90,000 in bondholder attorney fees, Anderson said. The attorneys told the judge that the payment of the fees will be resolved "informally" between them. The fees are payable from skyway revenues.
Bondholders have been in court since the 1970s in various attempts to force the city to pay off the bonds, which have been in default since 1963. Their latest claim, pending in federal district court, is that Chicago breached its fiduciary duty by depositing skyway revenues in non-interest bearing bank accounts.
Chicago is facing Jan. 1, 1995, deadline for resolving the skyway default. That is the date the outstanding bonds are scheduled to mature. If Chicago were to let the bonds mature without paying bondholders, the city would face an interest rate penalty of 5% more than the 3 3/8% and 4 3/8% coupon rates on the outstanding bonds. Knorr said last week that Chicago's credit standing could be negatively affected by failing to meet the January deadline.
The city would also face continued litigation and the prospect of more court-ordered toll increases. Last year, bondholders successfully argued for a toll increase to $2 per trip from $1.75, which went into effect in August.
In 1963, lack of sufficient traffic caused a default on $101 million of revenue bonds sold in 1955 and 1957 to build the skyway, a 7.8-mile toll-road that connects the southeast side of Chicago with the northwest corner of Indiana. In 1991, the city redeemed $10.8 million of the bonds through a tender offer.
Knorr said last week that traffic and revenues on the skyway have improved over the past five years. He said the city will seek insurance for the refunding issue. Earlier this week, Knorr requested ratings from Moody's Investors Serice, Fitch Investors Service, and Standard & Poor's Corp. after receiving indications from Fitch and Standard & Poor's that the refunded bonds would be investment grade.