ATLANTA - Hillsborough County, Fla., has scrapped plans to negotiate the $178 million utility bond deal that inspired anonymous accusations of a rigged underwriter selection process.
County commissioners voted to switch to a competitive process last Thursday, three days after the county prosecutor cleared officials of charges that they had tried to steer the deal to Morgan Stanley & Co.
The Board of Commissioners also voted to sell competitively an unrelated $132 million jail bond offering, reversing an earlier staff recommendation that Kidder Peabody & Co. negotiate the bonds. No one had accused county officials of any wrongdoing in the criminal justice bond selection process.
All five county commissioners present at the meeting of the seven-member board backed the motion.
"We decided to go competitive with both of these issues because we felt we had to make a fresh start after all the publicity, so there would be absolutely no confusion in anybody's mind about the Integrity of our financings," county commissioner Jan Platt said last Friday in an interview. "We are sorry if this means that the bankers that had been selected by our finance staff to do the deals won't get them."
Platt said that the commissioners' decision would not rule out future negotiated sales.
"Our guideline will be whatever gives the county the best deal," she said.
Joe Chillura, another commissioner, also said he would leave open the possibility of future negotiated deals.
"I feel all this has been unfortunate, but it has given us all an education about the bond business and the need for more involvement in the process by the commissioners, he said.
Platt said that her vote was in no way meant as a repudiation of the decision handed down last week by the Hillsborough County state attorney, Harry Lee Coe 3d.
"I don't think we should second-guess the investigation," she said.
On Monday, Coe exonerated county debt manager Michael Merrill and finance director Edwin Hunzeker of charges that numbers in a bond proposal submitted by Morgan Stanley had been altered.
The charges were contained in an unsigned facsimile transmission sent to four county commissioners on April 15.
The fax arrived hours before the board of commissioners was set to vote on the recommendation of the county's Finance Committee that Morgan Stanley be chosen as lead manager to head the utility's wastewater refinancing.
The Finance Committee had also recommended that Kidder Peabody be chosen as lead manager of an unrelated criminal justice bond issue.
After the fax was received, the commissioners put on hold approval of both issues, pending completion of an investigation of selection in the utility refunding deal. County administrator Frederick B. Karl requested the inquiry.
The commissioners' vote last Thursday on the bond issues came after Karl distributed a memo recommending that the deals be done on a competitive rather than negotiated basis.
"I would be comfortable with a recommendation that the [Board of County Commissioners] accept the original proposal of the staff and the Finance Committee, to wit: make the award to Morgan Stanley," Karl wrote.
"However I am aware of the publicity, investigation, and street talk - all of which have undermined the confidence of commissioners in this particular project, and given time constraints, it is unlikely it can be rehabilitated in the near term," Karl continued. "Therefore I have concluded we would all be better served by an entirely new approach to this part of our refinancing efforts."
In a separate memo on the criminal justice bond issue, Karl wrote:
"Although I am comfortable with the evaluation and selection process used by the Finance Committee for this transaction, the adverse publicity coupled with the extensive lobbying efforts by underwriting firms has undermined the confidence of the Board and the public in this selection process."
Following distribution of Karl's memos, the Finance Committee met and concurred in both his recommendations.
Hunzeker, the county's finance director, said Friday that his staff would work to prepare both deals for sale by mid-August.
He said that bid specifications for the offerings would be prepared for approval at the next board meeting of the commissioners, set for July 14. Bidders on the utility refunding, he said, would probably be asked to incorporate a methodology used by Morgan Stanley that relies on Treasury refunding rules due to expire by Aug. 15.
Merrill, the debt manager, said that the county would probably specify two separate bids, one for the bonds and another for the refunding escrow.
A spokeswoman for Morgan Stanley said last Friday, "We are disappointed, but from a political perspective we can understand why the commissioners did what they did."
She said Morgan Stanley firm has not yet made a decision on whether it will submit a bid for utility bonds. "That will be based on whether a bid makes economic sense for us," she said.
Officials at Kidder were unavailable for comment.
Investment bankers who do business in Florida were generally dismayed by the commissioners' action.
"If it was somebody from within the industry who sent the anonymous fax, I hope that person has learned a big lesson," said one banker, who declined to be identified. "Now, nobody will be able to do a deal that was probably much better done on a negotiated basis," he added.
"It's not uncommon to do small plain-vanilla refundings on a competitive basis - but it's another story for a large deal like this that involves special tax considerations," said another banker. "I wish Hillsborough County a lot of luck."