LOS ANGELES -- Local officials recently expressed concern about a growing deficit in the funds backing a $26.1 million mortgage revenue bond issue sold by two California cities in 1982.
"We want to know aht's causing this alleged deficit and what we can do about fixint it," said A1 Huezo, assistant city manager for the city of Newark, which is in Northern California.
The nonrated bond issue, sold through a joint powers authority created by the cities of Pleasanton and Newark, has not legally defaulted.
The numbers calculated as of Oct. 1 -- $2.6 million of bonds outstanding, $614,000 in remaining mortgages, and $1.8 million in reserves -- add up to a $186,000 defecit. The numbers were provided by MaryAnn Diaz, senior account executive with Security Pacific National Bank, the trustee on the financing.
Ms. Diaz said the bank had not taken any action to inform bondholders about the deficit.
Mr. Huezo said his city's "good name is at stake." He added that kicking in city general fund revenues to bail out the bond issue would not be an option. The official statement stipulates that Newark and PLeasonton are not liable for payments on the issue.
"We are concerned about the bondholders. This has never happened to us before. It shouldn't ever happen," he said.
Mr. Huezo said an audit report drafted by Kahan, Seltzer & Eckstein on June 30 showed a deficit in the fund balance of $116,182. He noted that the audit tipped the city off to the bond issue's deficit.
The deficit increased to $186,000 in October, Mr. Huezo said.
The cty of Newark sent a letter on Nov. 22 to Security Pacific requesting a meeting to discuss how the deficit occurred. So far, no meeting has been scheduled.
One broker who asked not to be named said Security Pacific should notify investors about the deficit because people could otherwise buy the bonds at too high a price.
Security Pacific made the last interest payment on Oct. 1 and expects no difficultry in making the next payment in April, according to Ms. Diaz.
Orrick, Herrington & Sutcliffe served as bond counsel, and Dean Witter Reynolds Inc. underwrote the issue.
The bonds were sold through the Plesanton-Newark HOme Financing Authority to reduce the cost of mortgage financing for single-family residential home purchases. The issue included varying maturities, with the final bonds due in 2013.