CHICAGO - The Iowa Finance Authority today expects to price $2.65 million of unrated revenue bonds to help three cash-strapped local governments recover funds lost in the Iowa Trust scandal. The deal comes nearly a month after $9.5 million of revenue bonds were sold to help four other communities in the state recover from the scandal. At present, the authority, which usually sells debt for capital projects throughout the state, does not plan any further issues to benefit victims of the Iowa Trust.
Each of the participants in today's pricing will use its loan to replenish funds for capital improvements.
The finance authority's $2.65 million issue is the second installment of the total $12.2 million of municipal investment recovery bonds it was authorized to issue by the Iowa legislature in February.
In July, Cerro Gordo County, Clinton County, the city of Dubuque, and Dubuque County received $9.5 million of bond proceeds. Those communities, except for the city of Dubuque, used their loans to replenish general fund balances for, among other purposes, cash-flow requirements. The city of Dubuque used the money to restore its pension fund assets.
The cities of Adel, Anamosa, and Boone will receive the proceeds from today's sale. Each participant, through its loan agreement, is obligated to annually levy sufficient property taxes to repay its loan.
The bonds are secured solely by loan repayments of the local governments and agencies, and are not an obligation of the authority or state. They are backed by a general obligation, unlimited tax pledge by the seven local governments that requested loans from the authority.
The $2.65 million of bonds, which are scheduled to mature between 1994 and 1997, are not rated because the three recipient cities have little or no debt outstanding, according to Tim Oswald, assistant vice president of Piper Jaffray Inc., the co-senior manager and book-runner for the negotiated deal. Securities Corporation of Iowa is the other co-senior manager.
The $9.5 million of revenue bonds were priced on July 22. That issue was rated A by Moody's Investors Service; primarily because the city of Dubuque's GO debt had an Aa rating from Moody's and because the other three communities had little or no debt, Mr. Oswald said.
Piper Jaffray also served as senior manager on the last deal, which was structured as serial bonds and priced with a maximum yield of 6.15%, he said.
Mr. Oswald added that he expects today's offering to be priced around the same yield range.
The seven communities involved in the $12.2 million loan program are part of 88 local governments and agencies that pooled their cash in the Iowa Trust, an investment account handled by Institutional Treasury Management, the trust's investment adviser.
In December 1991, the Securities and Exchange Commission charged the firm with fraud after determining that $76 million was missing from the Iowa Trust's account. The Iowa attorney general has filled suit to recover the money from various banks in Colorado and California, and so far has recovered $43 million. However, a federal judge in Colorado has placed the funds in escrow until the bank can complete its appeal.
Anamosa City Clerk Suzanne Marek said the city's $300,000 loan would partially pay for construction costs of a bridge and other infrastructure improvements. She said the city had recovered $265,000 of the $565,000 it had invested in the Iowa Trust.
"We weren't sure we had to have" the loan, she said. "But as long as it was available, we thought we would take advantage of it."