ATLANTA -- New Orleans officials breathed a sigh of relief Saturday as voters overwhelmingly approved a refinancing of its $368.8 million of general obligation debt that will allow the cash-strapped city to continue operations.
A number of key business leaders had urged the city to declare bankruptcy, if the referendum did not pass, in lieu of implementing the massive layoffs or tax increases that would have been necessary to deal with a fiscal 1991 deficit of $13.5 million.
But now that voters have signed off on the $165 million refunding, New Orleans can look forward to an immediate cash infusion of up to $35 million after the planned September sale. The refunding also will free up about $19 million a year for capital programs that otherwise would have gone to debt service on the city's GOs. The money is available because the city will continue to collect the same property taxes as before but will have to pay out less in debt service. The final maturity date on the bonds will be extended from 2004 to 2021.
"We were on the brink of moving forward or moving backward, and I want to thank the city of New Orleans," Mayor Sidney Barthelemy said yesterday, according to Jinx Broussard, his spokeswoman. "This time we came together -- the City Council, the business community, the media," Mayor Barthelemy added.
Ms. Broussard said city officials plan to sell the bond issue in a $165 million negotiated offering around Sept. 19. She attributed the success of the referendum, which many observers expected to fail, to a coalescing of support last week.
In particular she credited a telephone blitz on Saturday by city workers -- who put out calls to 30,000 of their friends and relatives urging them to vote for the refinancing -- and a get-out-the-vote campaign by business leaders who had committed about $125.000 to the effort.
Most investment bankers in the city were taken aback by the two-to-one margin of support for the referendum.
"I'll have to admit I was surprised because things were not looking good [for passage of the referendum] a week ago," said Lee Bressler, vice president at Scharff & Jones Inc., a New Orleans-based subsidiary of Morgan Keegan & Co. "I think the campaign succeeded because its supporters did a great packaging job in the last week and were able to convince people that it was better than any other alternative."
City voters approved the refinancing despite a complicated format that some analysts said would only add to voter resistance to a plan extending repayment of the city borrowings. For the bond issue to be approved, voters were required to pass each of five separate referendums that dealt not only with the refinancing but the uses of the freed-up money.
Each of the referendum items passed by a about a 65% to 35% margin with about 51,000 votes cast, or about 20% of eligible voters in New Orleans.
In addition to approving the sale of the refunding issue itself, the voters approved using: a lump-sum savings of up to $35 million from the transaction to fund city operations; $6.5 million a year to secure the sale of $70 million of 30-year bonds to fund street repairs and building renovations; and $12.5 million a year for funding housing and economic development programs.
The next step in the financing is approval of an underwriting team by New Orleans's Board of Liquidation, City Debt, which oversees the city's borrowings.
Most city officials and investment bankers in New Orleans expect the board to recommend that Alex. Brown & Associatesd to be chosen as lead manager, with Doley Securities in New Orleans likely serving as co-senior underwriter. The deal was developed by Keith Butler, now a principal at Alex. Brown.
Board officials were not available for comment yesterday.
As current structured, Mr. Butler said, the issue would include $85 million in capital appreciation bonds. He said AMBAC Indemnity Corp. had tentatively agreed to insure the entire issue.
"We feel the refunding makes sense not only because it helps the city in an immediate sense, but because it allows for a much better fit between the city's debts and average life of its assets," he said.
Ms. Broussard said city officials had been ready to implement a fallback plan that included laying off 900 workers and cutting out a broad group of services if the referendum had not passed. Other options -- each of which would have been resisted by city council -- included increasing water bills by 200% or raising the sales tax another penny.
Rating agency officials could not be reached for comment. New Orleans's general obligation debt is rated Baa by Moddy's Investors Service and A Minus by Standard & Poor's Corp.