New Jersey officials released a report on Friday detailing how $11.6 million in fees was split among underwriters in a $1.8 billion refunding last December, with the biggest chunk -- $3.5 million -- going to Lazard Freres as senior manager.
The long-awaited report, which came in response to criticism of the refunding from Gov. Jim Florio's Republican opponents, was presented as a comprehensive look at the 80 bond issues the state and its authorities have sold since the governor took office in January 1990.
The report, prepared by state Treasurer Samuel F. Crane, lists the amounts all 68 firms involved in underwriting the various transactions were paid, explaining how much each earned from the approximately $56.4 million in fees generated by the deals.
Merrill Lynch & Co. and Lazard Freres were by far the two biggest players, accounting for $6.9 million and $6.2 million of the total respectively. Lehman Brothers was next at $3.6 million.
First Fidelity Securities and Merrill Lynch were the two highest paid co-senior managers on the December refunding, earning $1.3 million and $1 million respectively.
But the top tier of co-managers included companies that also won strong allocations. Butcher & Singer sold the most bonds among co-managers and was compensated the most as well, at $533,000.
Cypress Securities, on the other hand, ranked sixth out of seven in terms of bonds sold by co-managers in its tier, yet earned the second highest compensation for a co-manager on the deal, at $455,000. About $350,000 of that amount came in the form of a "pool allocation," which state officials say is used to make sure senior managers do not hog bonds but distribute at least a portion of them to smaller players.
Enright & Co., which sold just 500 bonds through an investor designation and was the only manager allocated no bonds at all by Lazard, won the second highest pool allocation, $135,000.
The report does not list fees paid to other players on the bond issues, such as bond counsel or financial advisors. It also does not include how much firms made from contracts to reinvest proceeds or refundings.
Republicans have questioned whether Lazard Freres was given too lucrative a reinvestment contract on the state's December refunding. The governor's chief of staff, Richard Wright, said the administration would try to get information about profits from the contract from Lazard Freres.
Assembly Speaker Chuck Haytaian, R-Warren, called the report "sorely lacking," and he said the Assembly Appropriations Committee should go ahead with hearings to review state bond practices. The Legislature's Republican leadership called the hearings, even threatening to subpoena key members of Florio's cabinet if necessary, because they said the administration had not been forthcoming in releasing details of how firms are compensated for municipal bond work in the state.
"We asked for this information -- unsanitized information -- months ago," Haytaian said in a statement. "What we got was a report that would make the Ty-D-Bol man proud."
Haytaian said the report's intricate level of detail about how much each firm was paid on each deal "misses the point."
"It's not how much money was paid," the Assembly Speaker said. "It's who pocketed the money. Who picked up the firms? Why did they need to be involved? Were they qualified? Were they experienced?"
But administration officials characterized the report as unprecedented in scope, and called it an attempt "to put everything onto the table" and "demystify" the process of issuing municipal bonds.
Although the impetus for the report was scrutiny of the December refunding, the final result focuses on much broader issues, emphasizing comparisons between underwriting spreads in New Jersey and elsewhere in the nation.
The report concludes that New Jersey pays substantially less in underwriting costs for bond sales under the Florio administration than under previous governors, even when the national trend of declining spreads over the past several years is taken into account. It also concludes that the state is paying significantly less in underwriting costs than state and local governments nationwide.
New York State, for example, pays 6% to 33% more for its underwritings than New Jersey. the report found. And the difference for Pennsylvania ranges from 28% to 42%.
"These savings in New Jersey have likely been due to New Jersey's high bond rating, moderate debt, and practice of aggressively negotiating with underwriters," the report says.