LOS ANGELES - A Los Angeles review committee last week reiterated its recommendation that the city appoint Goldman, Sachs & Co. to head an underwriting team for a large convention center refunding.
"A thorough review of the city review committee's process and analysis indicates that the review committee's recommendations continue to be in the city's best financial interests, and we therefore have no basis to recommend a change in the proposed team," says a June 2 memorandum to Mayor Tom Bradley from Keith Comrie, the city administrative officer.
The Los Angeles Convention and Exhibition Center Authority on May 12 overrode the committee's recommendation and voted for Grigsby Brandford & Co. as senior manager, with Goldman Sachs as a co-senior manager.
The committee also recommended Bank of America as another co-senior manager, but the authority chose PaineWebber Inc. for that post and put Bank of America in the co-manager's bracket.
Discussions during the May 12 meeting "suggest that the authority's selection of Grigsby Brandford as senior manager was based on their belief that the firm is qualified and the appointment would provide an opportunity for a minority business enterprise to participate at a level beyond previous transactions," Comrie said in the memo.
Comrie said that based on market conditions as of May 24, the city could refund about $371 million of existing convention center certificates of participation.
The mayor's office released Comrie's memo on Friday, a move that forwards the matter to the Los Angeles City Council for consideration.
The council's finance committee, which meets only on Tuesdays, is not expected to consider the matter until next week at the earliest.
Some market participants have cautioned in recent days that the city's savings will erode if interest rates begin to rise and the deal is not ready for market.
It is uncertain, however, when a final underwriting decision will be made. And since the city and authority are separate legal entities, both must concur in the selection of the underwriting team, a city attorney noted last week.
Comrie's memo asks that the City Council approve the underwriting team as recommended by the review committee and "refer the matter back to the convention center authority for concurrence."
The underwriting selection process has been scrutinized in recent weeks amid complaints from many investment bankers.
Two days after the authority's vote, Bank of America sent a letter to Comrie and withdrew its offer to underwrite the issue. The letter cites concern over lobbyists' influence and "a previously undisclosed agreement" involving an underwriting arrangement between Grigsby Brandford and PaineWebber that was discussed during the authority's May 12 meeting.
Bank of America also recommended selling the certificates through a competitive bidding process.
Comrie's June 2 memo to the mayor says that "the city charter requires that bonds be sold on a competitive basis unless it can be demonstrated that it is in the best interests of the city to sell the bonds through a negotiated sale."
Citing the refunding's size and complexity, the June 2 memo says "the city's independent financial advisers advise that it is still in the city's best financial interests to sell the bonds on a negotiated basis [and] the city attorney agrees."
The review committee that examined underwriters' proposals was made up of city staff members, outside financial advisers, and two authority commissioners.
Officials at Grigsby Brandford and PaineWebber also have raised questions about some of the criteria, used by the committee, saying the data failed to capture their firms' strengths.
Comrie's June 2 memo says "a comprehensive series of rating factors" was used, including the quality of proposals and the experience of the firms. "A key factor was the proposed city interest savings percentage," Comrie added.
Comrie's memo to the mayor features a chart showing rankings based on present value savings that were submitted by the firms in written proposals. Goldman Sachs is ranked first at 4.23% and Grigsby Brandford is at the bottom of the seven firms interviewed, with a 2.65% level.
Grigsby Brandford officials have strongly criticized Comrie's continued use of this chart because it reflects what city officials termed a "conceptual error" in Grigsby's written proposal. At the authority meetings, a city staffer said Grigsby would rank fourth, at about 4.09%, if that error were disregarded.
Comrie's office, an official said yesterday, takes the stance that adjustments to the written proposals would constitute a proposal enhancement that could only be considered in the selection process if all firms had the opportunity to submit revised proposals.
Grigsby Brandford officials have responded that clarifications and certain additional information can be considered, and argue it is unfair for Comrie's office to keep using the 2.65% figure in its presentations.
The underwriters could not be reached for comment on Comrie's latest memo.
