Boston officials who last week disbanded the city's negotiated underwriting syndicate said Wednesday they will sell an upcoming bond issue by competitive bid, rather than set up a new underwriting team.
Amid a growing investigation into possible conflicts of interest on several negotiated state-level bond issues, a competitive sale "provides the best means for achieving the lowest borrowing costs for Boston taxpayers in a completely open and fair bidding process," the city's acting mayor, Thomas M. Menino, said in a statement.
Boston has not sold bonds competitively since the late 1970s, city officials said.
Menino last week dropped senior manager First Albany Corp. and the rest of the city's underwriting team, saying if the next deal were negotiated, a new team would be picked.
But over the past week, new revelations have been made about undisclosed business ties between First Albany Corp., Lazard Freres & Co., and Merrill Lynch & Co. on Massachusetts Water Resources Authority bond issues.
On Wednesday, the MWRA dissolved its syndicate and fired First Albany as its financial adviser in response to the disclosures, which involved business ties between the MWRA's financial adviser, Mark Ferber, and authority underwriters.
Massachusetts officials have announced that the three firms will be barred from future state bond issues until an investigation into why full disclosure about the business ties was not made to the state.
All three firms have been active in recent Boston bond offerings, but city officials stress that no such conflicts are alleged with regard to any city deals.
"Boston's circumstances are much different than MWRA's. and Boston's financial adviser, Government Finance Associates, is independent, does not underwrite bonds, and has no business connections with any underwriters," said Boston treasurer Lee Jackson.
Government Finance Associates was selected as the city's adviser through a competitive bidding process in 1991.
J. Chester Johnson, chairman of the advisory firm, said the upcoming competitive issue will be about $50 million of general obligation bonds, to be priced in early September.
Johnson said the small size and straightforward aspects of the issue mean a competitive structure should work well. He said Boston's credit rating, which has steadily improved from junk status in the mid-1980s to its current single--A level, helps as well. Boston's credit has also been aided by an improvement in Massachusetts' credit over the period.
Jackson said that the announcement does not mean the city has decided to forgo all negotiated underwriting, and expects to use the process again when it makes fiscal sense.
"Aggressive bidding on the September sale would be a good way for an underwriter interested in future negotiated business to show that it is serious about Boston," the city treasurer said.