CHICAGO -- An Illinois authority yesterday approved a $25 million bond issue for the financially troubled city of East St. Louis, I11., setting off a scramble to price the bonds and pay off a battery of creditors by the end of the month.
While two state agencies must still sign off on the bond issue, officials said that is just a formality at this point.
The unanimous vote yesterday by the Illinois Development Finance Authority ended a tumultuous four-year process during which the East St. Louis Financial Advisory Authority worked to restructure about $83.4 million of debt and negotiated settlements with numerous creditors to get the city back on its feet.
"This deal is a sign the city is changing, improving, and has a real plan to move forward," said Brace Patterson, executive director of the East St. Louis oversight authority.
Carole Brown, a vice president at Mesirow Financial Inc., the senior manager for the bond issue, said the firm hopes to price the bonds by Oct. 25, but will set a final date based on market conditions.
The bonds, which will carry Illinois' moral obligation pledge, are rated A-minus by Standard & Poor's Corp. They will be paid off with the city's share from state revenues collected through an intercept device.
Patterson said the city's oversight authority Tuesday decided against insuring the bonds. "We didn't like the bids we received, and we're very comfortable with our A-minus rating," he said.
Brown said $12 million of the proceeds will go into an escrow fund to refund bonds issued by the city in 1985 and 1988. The remainder will pay off claims from creditors, including the Internal Revenue Service, other federal and state agencies, police and fire pension funds, and private litigants.
Though the state authority approved the bond issue with little debate, some members voiced concerns that the city had not yet received formal approval from the state department of commerce and community affairs, and the state bureau of the budget, whose sign-off is required before Illinois can add its moral obligation to the bonds. But Patterson said he expected to have the letters of approval from the two agencies in hand by the end of the week.
East St. Louis oversight officials expressed relief that an end to their financial troubles appears imminent. The city of 41,000 suffered from an exodus of business, and poor financial management in the 1980s that resulted in unpaid city employees, uncollected garbage, and loss of the deed to city hall.
The state passed the Illinois Distressed Cities Act specifically to respond to East St. Louis' predicament. The law allowed the city to issue debt through the Development Finance Authority, and created the city's Financial Advisory Authority, which wrestled unsuccessfully with a debt restructuring plan beginning in 1990.
East St. Louis' fortunes turned when a privately owned riverboat casino that opened in June 1993 started to trickle new revenue into the city, sparking the debt restructuring plan that will be completed through the new bond issue.