LOS ANGELES -- The Los Angeles City Council voted yesterday to sell a large convention center refinancing on a negotiated basis after several members expressed reservations about a recent recommendation to switch to a competitive sale.
The 11-to-4 council vote followed two hours of heated discussion and testimony over which sales method would be the best approach.
Pedro Echeverria, a senior assistant city attorney, told council members that there is a "strong bias" in the city charter toward a competitive sale unless it is proven negotiated sale would be in the city's best interest.
But Echeverria noted the decision was up to the council, adding that it could choose a negotiated approach if it considered a reasonable amount of information" to justify the decision.
A major issue discussed at yesterday's meeting was the decision this month by Public Resources Advisory Group, the city's financial adviser, and Keith Comrie, the city's administrative officer, to recommend a competitive sale.
That recommendation represented a change from their earlier positions, maintained through June, that the city should sell the certificates of participation on a negotiated basis because of the deal's size and complexity.
L. David Rush, president of Public Resources, was grilled repeatedly at yesterday's meeting about the justification for switching to a competitive sale. Council members who were skeptical about the change in recommendation said they failed to see what had changed to justify a competitive approach, arguing that the potential issue still appeared large and complex.
Rush responded that market conditions had changed in recent weeks, including a decline in interest rates.
Growing investor demand was one factor that would overcome the problem with size and favor a competitive sale, Rush said. Under such circumstances, "market perception" about a deal's complexity also can change as investor demand increases, he said.
Rush and city staffers also have noted that the availability of bond insurance for the transaction could help offset any issues with complexity.
Some council members, along with investment bankers who testified in favor of a negotiated sale, differed with Rush's opinion on whether there has actually been less market volatility in recent weeks.
Stephen Hicks, a managing director of PaineWebber Inc., used his testimony to present a historical yield volatility chart. " Based on those calculations, Hicks argued the market is "clearly not less volatile" today than when city staffers favored a negotiated sale earlier this spring.
City council members at times were baffled over the various evidence presented.
Those, who favored a competitive approach generally said the council should rely on Public Resources, arguing the firm was paid to provide a nonpartisan opinion on the sales approach that is in the city's best interest.
By contrast, council members who voted in favor of a negotiated sale generally seemed unconvinced about the rationale for switching to a competitive sale, and some were upset the competitive recommendation was made months after another authority assembled a negotiated underwriting team.
The Los Angeles Convention and Exhibition Center Authority on May 12 voted to appoint Grigsby Brandford & Co. as the bookrunning manager on the deal, with Goldman, Sachs, Co. and PaineWebber Inc. as co-senior managers.
Three members of that authority appeared at the City Council meeting yesterday to explain the reasoning behind their decision.
Among other things, the authority commissioners said they concluded that many of the top underwriting candidates were equally qualified to run the books. Based on that assumption of equal ability, the authority members said they based their choice partly on an opportunity to give Grigsby Brandford, a minority-owned firm, a chance to run the books.
Napoleon Brandford, the vice chairman of Grigsby Brandford, told council members yesterday that the convention center refinancing, which could reach $400 million, would set a record for his firm as the bookrunning manager.
Yesterday's decision marked a victory for Grigsby Brandford and other firms that argued against the competitive sale approach.
Bank of America, by contrast, had recommended the competitive approach after the authority's vote in May. Bank of America officials complained the underwriting selection process had been tainted by lobbying and other arrangements, arguing that these factors influenced the convention authority to reject a team that had been recommended by a nine-member review committee.
Zev Yaroslavsky, one of the council members who voted against the negotiated approach, complained about the lobbying again yesterday. Yaroslavsky questioned why some underwriters had to hire "an army of lobbyists to get them this deal" if the decision was based on merit.
The City Council's budget and finance committee, which is headed by Yaroslavsky, voted for the competitive approach last week.