Denver-based Kirchner Moore is conducting tender offers of high-interest Colorado housing bonds with the intention of escrowing the bonds that are tendered and calling the ones that are not, but market participants say the structure is fraught with tax and legal uncertainties.

To escrow the tendered bonds, the issuers -- Adams County and Jefferson County -- would sell collateralized mortgage obligations. The proceeds from the CMOs would purchase triple-A securities for the escrow, and the tendered bonds would increase in price, to about 118 from the 105 tender price. By then selling the escrowed bonds, according to sources close to the deal, both the issuers and Kirchner Moore would realize hefty profits.

Bondholders of Adams County, 1980 Series A and B issues, originally totaling $130.2 million, and $25 million of Jefferson County, 1980 Series B received the tender offers last month. The offers flatly stated that bondholders not tendering would suffer a call.

The Adams County, Series B tender says, "If this tender is successfully consummated, you will receive a price of 105% of the principal amount, plus accrued interest ... It is the intent of Adams County, through the issuance of refunding bonds, to call those bonds which have not been tendered on Sept. 1, 1991, at 102 1/2% of their principal amount." The September call date is the first call date on the bonds.

"It's a little bit like somebody has a gun to your head," said Ed Pendergast, vice president of fixed-income at St. Paul Fire & Marine Insurance Co. "And the underwriter wasn't able to tell us who made what on this deal. That's a little strange. I'm sure it was all worked out, but it smells a little fishy."

St. Paul owned $1.4 million of the Adams County bonds. Mr. Pendergast said he tendered all of his holdings. "From an economic point of view, we had no choice," he said.

Repeated telephone calls to executives at Kirchner Moore, a division of George K. Baum & Co., were not returned.

Sheryl Gillespie, a trader at Kirchner Moore and the bondholders' contact for the tender offer, said about $37 million of the $60 million outstanding Adams County bonds were tendered by the May 31 deadline. The Jefferson County deadline was extended this week, to June 18 from June 7.

"We are over the minimum" with the Adams County bonds. "We have enough to do the escrow," Ms. Gillespie said.

Underwriters and bond counsel said the deal runs into several difficulties. First is the varying treatment of bondholders. "How can you arbitrarily call bonds?" asked an underwriter, who asked not to be identified. "How can you direct the trustee to arbitrarily treat the bondholders differently, calling some and not others?"

And a lawyer with a firm that declined to offer an opinion on the tax ramifications, said the escrowed bonds may have to have the call provisions removed for the escrow to work.

"They have to tinker with the call provisions," this lawyer said, "and that usually calls for a reissuance."

The underwriter pointed out that the call provisions were a crucial aspect of the future escrowed bonds. "If I pay 118, I'm expecting the premium to be amortized over the remaining life of the escrowed bonds," he said. "If rates continued to drop, what would prevent [the issuer] from calling the bonds at a later date?"

William Gehrig, an attorney in the Washington office of Arter Hadden Haines & Miller, is acting as special tax and underwriter's counsel to Kirchner Moore. Mr. Gehrig did not return telephone calls.

Kirchner Moore and Terry Funderburk, finance director for Adams County, said the deal would result in strong savings for the issuers, but neither would address the specifics of how those savings would be realized.

One source suggested that Kirchner Moore and the counties would split the profits from the sale of the escrowed bonds, yet such an action would raise arbitrage rebate questions.

"Arbitrage rebate issues have been looked at and we don't see it as a problem," said Mr. Funderburk. "It's going to save the county a lot of money." He declined further comment, saying he was under "strict counsel" not to address anything other than the contents of the tender notice.

Ellen Wakeman, counsel for Jefferson County, was unavailable for comment.

Refunding mortgage-backed municipal bonds with collateralized mortgage obligations is a relatively new practice. Thomas Sheridan, vice president of tax-exempt housing at Standard & Poor's Corp. said that in 1990 Wilmington, Del., carved an older municipal deal into three CMO tranches.

"But all I have seen is straight refundings," Mr. Sheridan said. "I have never seen or heard of anything like this."

Mr. Pendergast of St. Paul Insurance said the strategy of using a CMO remarketing, rather than a refunding, was a curve ball.

"When the bonds were sold, a remarketing wasn't thought of by either party," he said. "No one thought of the taxable aspect; it wasn't in the marketplace. In good faith, we lent money to the housing authority -- looking at the single family mortgage market -- and [the CMO structure] wasn't part of the contract.

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