CHICAGO - Chicago plans to price $150 million of bonds today in its first general obligation issue for infrastructure improvements since 1985.

The deal comes just months after a much publicized underground flood wreaked havoc on the city's downtown in what was determined to be a federal disaster.

About $3.5 million of the proceeds will be used for flood-related structural improvements. The proceeds will be used in addition to $5 million of city funds to pay Chicago's share of the $37.3 million price tag for plugging the leak and doing flood repairs.

Hamilton Investments Inc. is co-senior manager and bookrunner. PaineWebber Inc. is the other co-senior manager. Co-managers are M.R. Beal & Co., Carmona Motley & Co., KM Independence Group, LaSalle National Capital Markets, and The Northern Trust Co.

City Comptroller Walker Knorr said the deal is crucial to the city's health.

"The prime thing is jobs. We believe that maintaining the infrastructure is important for getting jobs into the city, and also the jobs associated with doing the work," Mr. Knorr said.

Mayor Richard Daley proposed the issue in May. It is part of a $185 million bond package for infrastructure improvements that the city council approved earlier this month.

The remaining $35 million of bond anticipation notes, to be secured with a letter of credit, will be priced in September, Mr. Knorr said. Proceeds from the notes will finance commercial development projects in the city.

In his announcement of the $150 million bond issue, Mayor Daley said that upgrading Chicago's infrastructure "is vital to the city's economic well-being." He also said the projects slated for the bond proceeds would save or create 1,500 jobs for the city.

Those projects and their share of the bond proceeds are: $13.7 for bridge repairs, including the $3.5 million for flood repairs; $63.3 million for facility renovations; $4.75 million for lighting and security; $10 million for residential street repairs; and $5 million for underground tanks.

Mr. Knorr said $14 million of the bond proceeds will pay for capitalized interest, the cost of issuance on the bonds, and the refunding of up to $5 million of outstanding GO tender notes the city sold in 1990.

The bond issue, which will be insured by AMBAC Indemnity Corp., is tentatively structured as $38.1 million of serial bonds, with $17.9 million of the bonds maturing between 1997 and 2002. The remaining $20.1 million of bonds, which are callable, will mature between 2003 and 2007, according to the city's preliminary official statement.

The term bonds are made up of $26.9 million due Jan. 1, 2012, and $84.9 million due Jan. 1, 2022, according to the statement.

Mr. Knorr said both serial and term bonds are callable and subject to mandatory tender for purchase if they mature on or after Jan. 1, 2003.

He added that he did not anticipate any increase in property taxes to pay debt service on the bonds due to savings from past and future debt refinancings and the retiring of old GO bonds in the past and future.

As for insuring the bonds, Mr. Knorr said it was "economically appropriate" and based on a "very good" bid from AMBAC.

"It still comes down to an economic decision. Can you overall save yourself, on a present-value basis, debt service moneys by insuring as opposed to being uninsured. For me a threshold is 10 basis points and it appeared we were there," Mr. Knorr said.

The insurance is expected to earn the issue a triple-A rating from Moody's Investors Service and Standard & Poor's Corp., according to Mr. Knorr.

Market players said that, depending on coupon levels, the deal is likely to garner an interest rate below 6% for long bonds as municipals enjoy an extended rally.

Officials at both rating agencies mentioned concerns over Chicago's potential liability for the downtown flooding on April 13.

Since that time, about 10 lawsuits have been filed charging the city and others with negligence, according to Gail Niemann, the city's chief assistant corporation counsel.

In May, a Cook County Circuit Court judge consolidated the suits into one lawsuit, charging the city and Great Lakes Dredge & Dock Co., a marine construction firm that had done some repair work for the city on the river before the flooding, with negligence and "willful and wanton misconduct," according to Bruce Goodhart, one of the lawyers representing the plaintiffs.

Mr. Goodhart said that while damages are expected to be substantial, the amount will not be addressed until later in the legal process.

Earlier this month, the city filed a motion to dismiss the suit. Ms. Niemann said the motion was made on the grounds the city is protected from immunity by state statute and because most of the plaintiffs are suing for lost wages and business, "as opposed to real property damage."

In a review of the $150 million GO bond issue, Moody's said it recognizes, "the potential for tremendous liability cost "for the city from the litigation process, which the agency said it expects to be "extensive and long running."

Todd Whitestone, a managing director at Standard & Poor's, said the city's liability in the matter will be unknown for a long time.

Both agencies said the $37.3 million price tag for stopping the flood and repairing damage appears to be manageable for the city. The federal government has agreed to pay $26.8 million of the cost; Chicago will pay $8.5 million, including $3.5 million in bond proceeds; and Illinois has agreed to pay up to $3 million.

Mr. Knorr said he did not believe investors would focus on the city's flood. "With the overall financial stability of the city we were able to, at least with these initial costs, absorb" the flood-related expenses, he said.

Just weeks after the flood, Moody's affirmed an A rating on about $193 million of the city's outstanding unenhanced GO debt, while Standard & Poor's affirmed an A-minus rating on about $173 million of Chicago's Go debt.

While the two agencies view Chicago's present situation as stable, officials pointed to other worries about the city's financial well-being.

Talks are ongoing with unions representing 39,399 city employees. City officials have said every 1% increase in wages would cost Chicago $11 million. And one union spokesman said any increase is likely to be retroactive to Jan. 1, the beginning of the city's fiscal year.

Another concern is the future of the $90 million the city will receive this fiscal year from a state income tax surcharge due to expire June 30, 1993. Mr. Knorr declined to comment on the importance of the funds to the city, but said Chicago intends to fight to extent the surcharge beyond June 1993.

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