City rejects bond salesman, hires different investment firm
The investment company that arranged Lewisburg's 2002 and 2004 sewer bonds was, according to its salesman, "thrown out the door" on Tuesday when another firm was hired to deal with the city's troubled utility debt.
"What can you say when you're thrown out the door?" Morgan Keegan Vice President C.L. Overman of Knoxville replied when asked for his reaction to the City Council's decision. "It's not 'No comment.' It's time to go to the next meeting."
With that, Overman took the stairs to City Hall's ground floor.
While steps were taken nearly four years ago to protect the city against variable rate bonds sold in 2002, that issue's repayment schedule was recently accelerated from a 17-year pay-off to a seven-year schedule with a $900,000 price tag to get out of the $7 million deal, according to officials close to the situation.
The bonds' Aaa rating was achieved with an insurance policy bought in 2002, but last year, American Municipal Bond Assurance Corporation's security rating was downgraded by Moody's Investor's Service because it had too many sub-prime mortgages. That ruined Lewisburg's rating. State and federal law specified in bond contracts boosted city costs.
Overman offered a deal on Feb. 10 to refinance the bonds, plus $2 million borrowed when Lewisburg bought Cornersville's water system. A technical explanation on how some $8.5 million in new bonds would save the city was presented by Overman, but the Council balked at making a decision that night. City Treasurer Connie Edde sought a second opinion that was delivered on Tuesday afternoon.
Marlee Mitchell of Waller Lansden attorneys in Nashville called in her colleague, Alex Buchanan, a municipal bond expert, Edde said, reporting results of their reading of bond contracts and the insurance from AMBAC.
The advise was delivered simply: "That we take our medicine, refund our bonds and go from there," Edde reported.
Ultimately, that was done during a seven-minute meeting called for that special purpose, but after the Council adjourned, Mayor Bob Phillips provided some insight on the Council's reaction to the situation.
"The difficulty for this started in November," Phillips said. "We found out about it in December. Connie (Edde) knew about it -- that we might have a problem.
"If I had been their firm ... I'd have called all my clients to make them aware of a possible situation that they might face," the mayor said. "I really believe being up front is important.
"I really like it that Connie and the advisers and the water board were in agreement that this was the best course of action for us," he said.
That course of action was to adopt a resolution to start the sale of up to $9 million in bonds repayable with water and sewer revenue and city taxes.
The resolution also specifies that Robert W. Baird & Co. is the underwriter. Edde named Kevin Barnette of Baird & Co. as the agent, reminding the Council that he handled the city's refinancing of debts last year to reduce det costs incurred by the municipality.
"He closed a $60 million refunding bond with Jackson, Tenn., Edde said of Barnette's recent transactions. "He recommended the entire ($9 million) amount [and] assured me we could get it closed and get the money for the note."
The $2 million debt from the Cornersville utility acquisition was through a bond anticipation note; a loan in anticipation of selling bonds for the deal
Edde had also spoken with leaders of First Commerce Bank on North Ellington Parkway and while it was prepared to provide financing for a year, that would leave the city in the same position then, the treasurer said.
Furthermore, "Rates will be higher next year," she said. "Everybody is anticipating inflation."
Councilwoman Quinn Brandon moved and Councilman Odie Whitehead seconded the motion to accept Edde's recommendation. The vote was unanimous.
"We're going to be fine," Edde said.
The Council's decision cleared the way for the Water and Wastewater Board t vote yesterday on a water pipeline extension from Cornersville toward the Giles County border along Lynnville Highway.
The likelihood of approval was seen as high, according to three utility board members attending the Council meting.
Later, Phillips said, "The financial situation in the world today is a real eye opener."