After laboring since Tuesday night, Philadelphia has lined up buyers for about $100 million of unrated short-term notes and expects to sell another $25 million today, according to city finance officials.
The coupon on the privately placed notes was tentatively set at 9.50% but a final yield has not yet been determined because sales negotiations -- which began Tuesday night -- are still under way, Philadelphia Finance Director David Brenner said yesterday.
The deal represents the first phase of a bridge loan Philadelphia needs to meet its summer cash-flow needs. Originally, the city was hoping to use proceeds from a new oversight authority, the Pennsylvania Intergovernmental Cooperation Authority, to help make it through the summer.
But those bonds, which are to be used primarily to bond out budget deficits in fiscal years 1991 and 1992, are now not expected to come to market until at least late fall, Mr. Brenner said. The bond sale cannot take place until the authority approves a five-year fiscal plan to address structural deficits and recurring cash crises. That plan is not expected to be ready until the end of August.
Original estimates on the size of the bridge loan pegged the need at almost $250 million, and Mr. Brenner said additional short-term borrowing later in the year in the form of tax anticipation notes might be necessary regardless of when the authority sells its bonds.
RRZ Public Markets Inc. of Pittsburgh is acting as banker on the note deal, and Kidder, Peabody & Co. is a pricing consultant. Kidder's task is to provide the city with information about market conditions and how the price of the city's notes stack up against similar securities.
Mr. Brenner said the city has a number of potential buyer for the notes, mostly tax-exempt funds.
Even though the notes are unrated, the coupon is still relatively high in comparison to other tax-exempt general obligation notes sold by troubled issuers that have been priced in the last two weeks.
Connecticut, even with Gov. Lowell Weicker's veto of the budget yesterday, sold $319 million of rated notes that were priced to yield 4.6%. And New York City, which has been plagued by its own budget problems, last week sold $1 billion of rated tax anticipation notes priced with a maximum yield of 4.95%
But Mr. Brenner said he is happy with a rate somewhere near the 9.5% estimated yesterday. "This is still unrated paper," he pointed out.
