CHICAGO - The Iowa Finance Authority plans to issue $13.5 million of revenue bonds next month and lend the proceeds to 12 cash-strapped local governments and agencies trying to recover funds lost in the Iowa Trust scandal.
The bonds are expected to be sold in two issues. The first, a $10.3 million issue, is scheduled to be priced July 15, according to Tom Stanberry, managing director of the public finance division of Piper Jaffray Inc., the senior manager for the negotiated deal. The pricing date for the other offering, a $3.2 million issue, is expected about two weeks later, Mr. Stanberry said.
The loan program intended to shore up the cash-flow positions of 12 local governments and agencies until the funds they lost in the Iowa Trust are recovered, Mr. Stanberry said.
The Iowa attorney general's office contends that Institutional Treasury Management, the investment adviser for the Iowa Trust, mishandled the account, resulting in $76 million in missing funds. The Iowa Trust consists of 88 local governments and agencies that pooled their cash in an investment account.
The bonds will be backed solely by the loan repayments of the local governments and agencies and will not be an obligation of the authority or state. Iowa's constitution bars the state from issuing general obligation debt.
The authority hopes to obtain a rating on the issue from Moody's Investors Service before July 15, Mr. Stanberry said. Ann Lowenthal, a vice president and manager of the Plains region at Moody's, said the rating analysis would include a review of the bond ratings of municipalities expected to receive bond proceeds.
Securities Corporation of Iowa is the co-manager for the deal.
In May, a federal court ordered a Colorado bank to return $43 million to the Iowa Trust. The funds had been transferred to the bank through a series of transactions handled by Steven Wymer, the head of Institutional Treasury Management, and are being held in escrow pending the bank's appeal.
The Iowa attorney general's office believes the remaining $33 million is being held in California institutions. Three lawsuits filed by the Iowa attorney general's office to recover those funds are pending.
The Securities and Exchange Commission June 11 barred Mr. Wymer from the securities business in a settlement of a lawsuit the agency had filed. The suit charged Mr. Wymer with falsifying account statements in an effort to inflate the value of client accounts, unlawfully transferring money and securities among accounts, and overcharging clients for securities. Mr. Wymer neither admitted nor denied charges in the settlement.
So far, only Marshalltown, Iowa, has had its GOs downgraded because of the Iowa Trust scandal. Moody's Investors Service downgraded the bonds to A from Aa.