Move over Elvis stamps, the U.S. Postal Service contest heating up now is whether it can borrow through the private sector instead of the Federal Financing Bank.
The battle has progressed to Capitol Hill and, for now at least, the Postal Service appears to have the edge.
Rep. Frank McCloskey, D-Ind., chairman of the House postal operations and services subcommittee, last week said it was likely that his committee would act on legislation giving the Postal Service increased financial flexibility and allowing it to invest in the open market with some restrictions.
"It appears the Postal Service may very well be the lowly stepchild of a paternalistic Department of the Treasury." Mr. McCloskey stated last Thursday. "The Postal Service is unable to take advantage of float from banking, the ability to refinance its debts, and the investment services that the financial markets can offer."
Since 1973 when the Federal Financing Bank was created at the Treasury's request, the Postal Service has done its borrowing through the bank. Now the Postal Service wants to make that business, along with its banking and investing elsewhere.
"Over the past 20 years, the Postal Service has been increasingly constrained in its efforts to manage its finances in a businesslike way." Comer S. Coppie, a senior assistant postmaster general, told the subcommittee last week.
"The interests of the postage-paying public have been sacrificed to the Treasury's insistence on maintaining structures which, although administratively simple, have grown progressively out of date," he said.
The Treasury, however, strongly opposes the Postal Service's request. Treasury Finance Undersecretary Jerome H. Powell told the subcommittee, "The Treasury is concerned that the government's overall costs would increase if the Postal Service obtained these services in the private market."
But Mr. Coppie countered Friday, "I don't think it's the ratepayers' responsibility to subsidize the taxpayers of the United States." He added that those ratepayers are also taxpayers.
Restrictive Treasury policies on Postal Service borrowing, investment, and banking cost the service and ultimately ratepayers about $250 million a year, Mr. Coppie told the subcommittee..
The most important opportunity the private sector would afford the service would be the ability to refinance debt when interest rates fall. If the Postal Service could prepay its Federal Financing Bank debt at face value, it would save $170 million a year.
Or, if the service refinanced part of its Federal Financing debt in the markets through defeasance, it would save $70 million annually, Mr. Coppie told the subcommittee.
The Postal Service is one of the Federal Financing Bank's three remaining big customers. The others are the Resolution Trust Corp. and the Federal Deposit Insurance Corp., Mr. Coppie said.
While the service has been contemplating a split from the bank for at least six years, Mr. Coppie said, the idea gained momentum when former Tennessee Valley Authority Chairman Marvin T. Runyon came aboard Mr. Runyon was appointed postmaster general in June. The TVA has already broken away from the Federal Financing Bank.
The Postal Service can obtain permission to break away from either the Treasury secretary or through legislation, Mr. Coppie said. It is still pursuing both options, he said.
But Mr. Powell said, "We believe that legislation authorizing the Postal Service to borrow in the market and issue Treasury-like securities would run directly counter to the sound purposes for which the FFB was established."
The Treasury requested the bank's creation to avoid the "then-existing market confusion and competition" between agencies and the Treasury as each offered securities individually in the market, he said.
"The Postal Service with its status as a federal establishment, and its statutory links to the credit of the United States, should continue to borrow, bank, and invest through the Treasury as do other executive branch entities," Mr. Powell said.
He added, however, that the Treasury was willing to work with the Postal Service to improve their financial relationship where possible.
New Issues
Federal Farm Credit Bank issued $280 million of floating rate notes due 1993. the noncallable notes priced initially at pa float daily at 275 basis points under the prime rate and pay quarterly. J.P. Morgan Securities Inc. sole-managed the offering.
Norwest Financial issued $150 million of 6% senior notes due 1997. The noncallable notes were priced at 99.82 to yield 6.042% or 45 basis points over five-year Treasuries. Moody's rates the offering Aa3, while Standard & Poor's rates it A-plus. Merrill Lynch & Co. managed the offering.
Harman International Industries Inc. issued $70 million of 12% senior subordinated notes due 2002. The notes were priced at 99.277% to yield 12.125%. They are callable after five years beginning at 106 and moving to 104, 102 and par at maturity. Moody's rates the offering B2, while Standard & Poor's rates it B-minus. Lehman Brothers lead managed the offering.
Chesapeake Potomac Telephone Co. of West Virginia issued $50 million of 7% debentures due 2004. The noncallable debentures were priced at 99.28 to yield 7.09% or 50 basis points over 10-year Treasuries. Moody's rates the offering As3, while Standard & Poor's rates it AA. Goldman, Sachs & Co. sole managed the offering.
