ATLANTA -- Sanwa Bank Ltd. said this week it will not provide a letter of credit for future tax-exempt commercial paper loans to Brevard County, Fla., citing market concerns that the county might renege on paying for a certificates o participation issue sold in 1989.
In a letter sent Monday, David J. Sellers, a vice president of public finance at Sanwa Bank in New York, wrote that because of a rating agency warning, the bank could not approve Brevard County's request for an additional $3 million loan. The loan would have been made under the Florida Association of Counties' commercial-paper loan program, for which Sanwa provides a letter of credit.
"We are now aware of recent reports concerning possible rating agency actions and their potentially adverse affects on the county's credit rating and its ability to access the credit markets," Sellers wrote. "We believe that the prudent course at this time is to assess the current situation before any further draws under the loan agreement can be favorably considered."
Although the letter did not specifically mention the rating agency by name, Richard Lewis, a spokesman for the bank, said yesterday that Sanwa's main concern is a recent credit report from Moody's Investors Service.
The spokesman said that the bank's decision this week does not affect its commitment to back $7 million of loans that Brevard County has outstanding through the county association's commercial paper program. He also said the bank will reconsider its position if there is no longer the threat of a downgrade.
In the Moody's report, dated Oct. 13, the ratings agency warned that it is prepared to downgrade the uninsured borrowings of Brevard County if continued appropriation for the COPs financing is put to a referendum.
"Should the issue of nonappropriation be placed before voters, Moody's would consider the commission's actions as a nonwillingness to pay its obligations and take negative rating action on the uninsured ratings of the county," the report says.
The bank's action comes at a time of renewed worries about the willingness of Brevard County to stand behind its obligations.
The county came under enormous pressure from municipal market participants last fall after it considered calling a referendum on a $23.9 million COPs deal sold to fund a controversial governmental operations center.
The referendum would have asked voters if the county should cease appropriations for lease payments on the financing. The board later backed off its call on a narrow 3-to-2 vote.
Recently, however, municipal bond industry concern has resurfaced with the approach of the Nov. 3 election, at which three commission seats are up for grabs.
According to source in Brevard County, there is a good chance that the election could result in at least one new commissioner willing to put the COPs issue before voters.
Of the three contested seats, the sources say, only the seat held by referendum proponent Truman Scarborough seems a sure thing, with Scarborough heavily favored for re-election. Either of the other two seats, currently held by referendum opponents Thad Altman and Carol Finney, might be won by those favoring a referendum, according to the sources.
Brevard County officials said yesterday they were caught off guard by the Sanwa decision.
County Attorney Bob Guthrie described the bank's action as a "setback" for the county, but said that officials would not make a concerted effort before Nov. 3 to persuade Sanwa to change its mind.
"We are in a very awkward position with this, but for the time being we can only wait until after the election, then we will explore our options," he said.
Karen Andreas, a county commissioner, said, "I deeply resent the bullying posture that the financial community has taken once again."
Andreas, who voted for the referendum on the COPs issue last year, said she continues to support such an approach. But she said it is inappropriate for the financial community to issue warnings before the commissioners actually move to place the issue before voters.
"The time for the financial community to get involved is after the commission actually takes a vote to go to referendum, not before," she said. "What they are doing right now is attempting to cut off any discussion [of the referendum], and that affects our free speech."
Thomas Holley, the county's financial adviser, said that because of the Moody's warning and Sanwa action, the county has decided not to move forward with the sale of up to $22.5 million of solid waste revenue bonds it had been hoping to issue this month.
"We are not going to do any financings in the immediate future with the climate the way it is," he said. "But I hope that the financial community would also take a wait-and-see approach and not react prematurely."
Guthrie said that on Sept. 30 the county requested approval for the loan of $3 million under the commercial paper program, and urged the bank to respond by the end of October.
He said the county had planned to use $1.5 million of the proceeds for renovation of the county courthouse at Titusville, $1.2 million for various municipal public water works projects, and $300 million to continue funding start-up costs for construction of a spring training stadium for the Florida Marlins, an expansion baseball team.
The county attorney said that it would be difficult to raise taxes to cover the outlays that would have been covered by the loan program. "If we do not get approval, and cannot find another bank, it looks like we would just have to cut spending," he said.
This is not the first time Sanwa has denied a request to extend a letter of credit to a municipality. Last December, the bank turned down Philadelphia's bid to extend its letter-of-credit backing for $88.5 million of notes. And in October 1991, the bank decided not to renew letter-of-credit backing for $24.3 million of Enid, Okla., variable-rate water and sewer revenue bonds.
The bank has declined to comment on these actions.