WASHINGTON -- District of Columbia officials, working with PaineWebber Inc., are developing lease terms that will serve as the basis for the city's first-ever certificate of participation offering, according to Ellen M. O'Connor, the district's deputy mayor for finance.

O'Connor said "intense work on the lease" is under way, with an eye toward finalizing the package by mid-October. The lease would then be reviewed by the D.C. Council, the city's legislative body, a process that could take up to 60 days.

Under city law, all contracts worth more than $1 million must be reviewed and approved by the council. The contracts requirement was adopted by the council in late 1990 in an effort to get more control over procurement costs.

Assuming council approval, finance officials would study then-prevailing market conditions to determine whether the deal will save the city money. If so, issuance of the certificates could come by mid-December to late January, O'Connor said.

The proposed $75 million, 20-year certificate financing will help the city buy land under an office building owned and operated by the district.

The building, which will house various district departments and agencies beginning at the end of the year, is located at One Judiciary Square. It was purchased by the city in March for $70 million using general obligation bond proceeds.

When the city bought the building, it received an option to buy the land at a later time. The city currently is leasing the land from the project developers. The current lease is for 20 years.

O'Connor said the lease payments represent interest only, meaning the district would not own the land after the lease expires. She said the cost of money for the city on the current deal is 11.5%.

The new lease will be structured in such a way that the city will own the land at the end of the financing period. Other issues to be addressed in the new lease are whether credit enhancements are used and what happens in case of default.

The lease payments would be dependent upon annual appropriations by the district government. Neither the certificates nor the payments under the lease would constitute indebtedness of the district.

O'Connor said the city decided to look at the possibility of utilizing certificates because of a desire to keep the city's annual GO borrowings in the neighborhood of $250 million.

The proposed COP deal is not a vehicle for circumventing voter approval of debt issuance because the district does not have such prerequisites for offering bonds, O'Connor said in a recent interview with The Bond Buyer.

In other developments, O'Connor said district officials have shelved indefinitely a plan to come to market to refund some of the city's outstanding debt.

"Given the state of the market right now, there would be no financial benefit for the district to pursue a refunding," she said.

In late August, officials believed a refunding of $250 million could save the city $9 million in present value savings. At the point, officials were trying to decide how much to refund and whether to enhance the deal.

The city's uninsured GO bond rating is A-minus with both Standard & Poor's Corp. and Fitch Investors Service, and Baa with Moody's Investors Service. The city's last GO bond deal, a $260 million issue in May, carried insurance from Municipal Bond Investors Assurance Corp., allowing the debt to carry a triple-A rating.

By mid-September, a refunding began to look less and less attractive. But O'Connor said at the time that officials were continuing to lay the groundwork for a refunding to preserve the city's options.

Now, however, a refunding does not look likely in the near future. "It's on hold," O'Connor said.

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