DALLAS -- A local bank is protesting the Oklahoma Water Resources Board's decision to hire another firm as trustee for an upcoming issue when the winning proposal costs three times the bank's bid.

Liberty National Bank of Oklahoma City complained in a May 27 letter to Patricia Eaton, executive director of the board, that it had been passed over even though it was the lowest of three bidders on the upcoming $50 million blind pool financing.

But state officials said the choice of St. Louis-based Boatmen's National Bank was necessary because the bank is already trustee on two previous deals that share common reserve funds with the proposed new issue.

State officials also said the board believed separate trustees might jeopardize the AA rating the agency expects from Standard & Poor's Corp. The two previous were AAA-rated because they were insured by AMBAC Indemnity Corp.

Jim Joseph, Oklahoma's bond adviser, said that since all the deals share a legislatively appropriated reserve, the new issue must have the same trustee as the series 1989 and 1986 deals.

First Interstate Bank of Oklahoma was the original trustee on the two previous deals, but Boatmen's was named as successor after it bought out the bank. A bank officer declined to comment.

Mr. Joseph said the loan pool program's structure allows any of the three issues to draw on the combined reserve to cover any shortfalls. He said separate trustees would not work because "the new trustees would have a fiduciary obligation to the 1992 bondholders."

Liberty officials disagreed.

"We've informally lodged lots of protest," said Jake Riley, senior vice president and head of the corporate trust department at Liberty National. "The common reserve could be held by a third party," such as the state treasurer.

Mr. Joseph said the water resources authority had wanted to waive the competitive bidding requirements, but he told authority officials they could not do so legally. When the agency took bids this spring, it received three widely varying bids.

Liberty projected its fees would total $64,290 for the 20-year life of the deal, compared with a $190,900 estimate from Boatmen's and a $327,750 bid from the Bank of Oklahoma.

While the Boatmen's and Liberty upfront costs were similar, they differed on their proposed annual fees to act as trustee for the life of the issue. Liberty bid $2,835, compared to the Boatmen's bid of $8,995 a year.

In the May 27 letter to the authority, Liberty Vice Chairman William M. Bell asked the water resources board to reconsider its decision.

The board, which met Tuesday, has taken the matter under advisement.

"There is nothing so unique about this issue that would give the incumbent trustee any material advantage," the two-page letter says. "All three banks who bid are capable of handling the proposed issue. The only unique difference is our low bid."

Walid Maher, chief of the board's financial assistance division, defended the decision and said pricing was only a small part of the selection criteria. "Boatmen's bid was within industry standards," he said. "It's not high, it's not low."

Mr. Joseph said the Boatmen's bid will not likely be the feee the water resources board finally agrees to. "We're going to try to negotiate to bring their bid in line with the low bid as much as possible," he said.

Mr. Riley said his bank will be satisfied if Boatmen's matches the low bid. He defended his bank's bid, adding that Liberty was willing to make a concession in the hopes of starting a long-term relationship with the board.

"We felt it was a marginal bid," he said. "What we were hoping for was a relationship with the board."

The board has hired St. Louis-based Stifel, Nicolaus & Co. for its negotiated underwriting and expects to close the issue by early August. Proceeds from the sale will be used to make local-government loans for water and sewer system projects in Oklahoma.

Plans for the sale were complicated after lawmakers ended their session last month without appropriating funds for the common reserve fund. Mr. Joseph said the board had traditionally been able to reduce the cost of the program because reserves did not have to come out of bond proceeds. He added, "Now they are looking for other ways to complete the issue."

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