WASHINGTON - Bond firms say Chicago could make millions of dollars from a proposed call waiver and interest rate swap-like transaction, but federal regulatory officials warn that the deal appears to violate tax laws and could undermine the tax-exempt status of some of the city's bonds.

The transaction, which could be completed by Jan. 4, calls for the Illinois Development Finance Authority to obtain a short-term, floating-rate bank loan to finance its purchase of up to $105 million of general obligation bonds that Chicago issued in 1982 and advance refunded in 1985 and 1986.

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