CHICAGO -- The long-awaited financial bailout of East St. Louis, Ill., will take place within the next two weeks when $25 million of bonds are scheduled to be sold to pay off the city's debts and restructure its existing bonds
On Friday, the East St. Louis Financial Advisory Authority board gave its final approval to the debt plan, following the plan's approval Thursday night by East St. Louis city council members. Illinois formed the authority to oversee the city's finances.
Bruce Patterson, executive director of the authority, called the bond issue "a significant milestone" for the city.
The $25 million of debt restructuring revenue bonds will be issued through the Illinois Development Finance Authority, pending final approval of that authority's board. Phil Howe, the authority's acting executive director, said the bond plan received preliminary approval last month and is expected to win final approval on Wednesday.
Proceeds from the issue will be used to restructure debt issued by the city in 1985 and 1988 and to pay off creditors.
East St. Louis needs to issue the bonds and close the deal by the end of the month when the city is scheduled to pay off negotiated settlements with a number of creditors, including the Internal Revenue Service, other federal and state agencies, and police and fire pension funds, according to officials involved in the bond issue.
Carole Brown, a vice president at Mesirow Financial Inc., the senior manager for the bond issue, said that $12 million of the proceeds will fund an escrow to refund the old bonds, while the remainder will be used to pay off the negotiated settlements and to pay for the cost of issuing the bonds.
Before entering into negotiations, the city's debts totaled $83.4 million.
The bonds will be paid off with the city's share of state revenues collected through an intercept mechanism. The bonds will carry Illinois' moral obligation pledge and will be rated by Standard & Poor's Corp., Brown said. Bond insurance for the issue is also a possibility, she said.
Patterson said that East St. Louis is the first Illinois city to use the Illinois Distressed Cities Act.
The financial advisory authority was created by the act, which was passed in 1990 by the General Assembly. The act, written with East St. Louis in mind, set up a framework for rescuing financially troubled cities and allowed for the issuance of debt through the development finance authority.
East St. Louis has already received a $3.7 million emergency loan from the state, which was provided for by the act.
The city of 41,000 has a long history of financial problems, stemming from the departure of businesses and fiscal mismanagement by former officials.
Since 1990, officials from East St. Louis and its oversight authority have been trying to formulate a debt restructuring plan to get the beleaguered city back on its feet. However, it wasn't until a privately owned riverboat casino opened in June 1993, providing the city with a new source of revenue, that such a plan could be devised.
The casino revenues also attracted the attention of the Internal Revenue Service, which wanted East St. Louis to pay $14.5 million in illegal arbitrage that the city allegedly earned on $223.7 million of bonds that it sold in the 1980s. In March, the IRS and the city reached an agreement that called for the city to pay $1.4 million in two installments by Oct. 31.
Patterson said the oversight authority is optimistic that everything is in place to accomplish the goals of the Illinois Distressed Cities Act.
He said that East St. Louis officials are willing to take responsibility and deal with the past debts. He said that by successfully crafting the debt restructuring bond sale, East St. Louis officials are acknowledging that they are willing to take responsibility and deal with the past debts.
"From the authority's point of view, when this step is taken, the city will have a clean slate," Patterson said.