CHICAGO -- An agreement struck between Chicago-Calumet Skyway bondholders and Chicago last week will trigger a tender offer for nearly $9.4 million of $101 million of defaulted Skyway Bonds.

The agreement, entered in U.S. District Court for the Northern District of Illinois last Friday, marks the first time Chicago will redeem any of the bonds that defaulted in 1963.

"We are obviously very pleased we were able to cooperate with the city in regard to an aspect of the litigation," said Ken Purcell, an associate attorney at Winston & Strawn, the law firm representing bondholders in the class action litigation.

The agreement does not mean, however, more bond redemptions are on the horizon.

"We're looking to the Skyway revenues to see how they play out," said Nancy Klawson, the city's chief assistant corporation counsel, referring to the sole source of payment on the revenue bonds. "We don't foresee in the near future any more redemptions."

The $9,396,228 earmarked for the tender offer is made up of $5.4 million the city was ordered by the federal court on May 24 to place into a sinking fund and about $4 million of excess revenue uncovered by a fiscal 1990 audit completed June 19.

The agreement followed a bondholder petition filing in federal court in July asking the court to force Chicago to redeem $5.4 million in accordance with the federal court ruling. That action was the first time in the 19-year-old history of Skyway bondholder litigation against the city that the court was asked to force a redemption of the bonds.

At that time, Mr. Purcell said the placement of the money into the sinking fund would have been a sufficient amount to trigger the redemption of $5.4 million of bonds on July 1, the first interest payment date following the court ruling. Under the city's bond ordinance, when the sinking fund contains $50,000 or more, bonds are to be called and redeemed "so as to exhaust as near as possible all money in the sinking fund account," the petition stated.

The city never placed the money into the sinking fund by July 1, and opted instead to wait for the results of the fiscal 1990 audit, according to Ms. Klawson.

The agreement between the bondholders and the city puts into motion a tender offer mechanism that could begin as soon as next week with the publication of tender notices in The Wall Street Journal and Chicago Tribune, according to Mr. Purcell. In addition, he said notices will be mailed to a list of identified bondholders.

Following the publication, bondholders will have until Oct. 11 to file objections to the tender offer. Tender offers will be received by the tender agent -- American National Bank and Trust Co. of Chicago -- between Oct. 12 and Nov. 1, with the bond purchase date set for Nov. 4.

The city will apply a yet-to-be-determined interest factor per $1,000 of principal amount to adjust for the interest rate difference between the two series of revenue bonds -- $88 million of bonds carrying a 3 3/8% interest rate and $13 million of bonds having a 4 3/8% interest rate.

Mr. Purcell said the bondholders' tender offers will be accepted on a lowest-offer basis, followed by the date of receipt of the tender. If the acceptable offers exceed the $9.4 million allocation minus expenses, a lottery will be held by the tender agent, he added.

If money is left over from the tender transactions, the city will be able to use the remaining funds to purchase bonds in the open market until Dec. 1, according to the agreement. If funds are still available following the open market purchase, the city can use the money to redeem bonds through a lottery on Jan. 1, the next interest payment date, Ms. Klawson explained.

Since 1972, bondholders have been in court mostly fighting the city for toll increases to squeeze more money out of the beleaguered 7.8-mile tollroad connecting the southeast side of Chicago with the northwest corner of Indiana. The city is currently fighting the bondholders' most recent request to raise passenger car tolls to $2 from $1.75.

The Skeyway sold $88 million of bonds in 1954 and $13 million in 1957. However, lower-than-expected traffic forced the bonds, which are backed only by skyway revenues, into default in 1963. The $101 million of bond principal matures in 1995.

While the cith has paid all past due interest on the bonds since 1989, it had not placed any money in the sinking fund. Ms. Klawson said the placement of the $9.4 million into the sinking fund for the tender offer would require approval from the city council, which is scheduled to meet Sept. 13.

"We do not anticipate any problems" in getting the necessary approval from the council, Ms. Klawson said.

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