Thursday, July 2, 2009

Bond deal dead, new one possible

Well, you never know what happens until you try. That old adage includes fighting Jackson's decision to refinance its 2002 and 2004 public works bonds with "interest rate swaps" derivatives that have bankrupted other local governments.

In the original deal, Jackson planned to refinance $95 million in bonds while paying $4 million in fees to various parties (this included $120,000 to Baker Donelson, $60,000 to Anthony Simon, $60,000 to Sarah O'Reilly-Evans, and $476,000 to Sterne Agee plus additional fees to "monitor" the contract to Sterne) for bonds which generated only $1.5 million in fees when originally issued.

However, City Finance Director Rick Hill announced Jackson will only refinance $40 million of bonds using interest rate swaps. The deal fell through because Deutschebank insisted Jackson would have to pay early termination fees if it ever got out of the deal (if it refinanced for example.). Other cities have been burned by these prepayment penalties as they usually cost millions of dollars. The deal was going to be insured by Financial Security Assurance, which proposed Jackson should have five years to pay the fees if termination occurred. The two parties could not agree on this issue so FSA is only going to insure a smaller amount.

Unfortunately, Mr. Hill tried to spin this new refinance as a good deal for Jackson. First he misstated the reasons why these swaps bankrupted Jefferson County:
"Hill said the banks involved in Jefferson County were unable to find anyone to buy the county’s variable-rate debt. He said Jackson has safeguards in place to prevent the same things from happening here. “They went way beyond normal practices,” he said." Northside Sun story

Actually Mr. Hill got it completely wrong. Whether he didn't know the facts or tried to deliberately mislead the reporter is for the reader to decide. The truth is the credit rating for the insurer, Ambanc, for Jefferson County's swap was slashed, causing the interest rate on it's bonds to literally jump overnight from 3% to 10%. There was no problem with selling the bonds as JP Morgan Chase was more than happy to collect ten percent interest and bankrupt the county. In fact, Chase allegedly overcharged JC by over $100 million.

Mr. Hill also says that the fees will only be $2 million. Only. The fees when the original $128 million in bonds were underwritten were $1.5 million dollars. The amount refinanced will be 31% of the original amount yet the fees will be half a million dollars more than what was originally paid. I asked Councilman Weill for a copy of the fees and was told Mr. Hill has not provided the Council with any materials yet showing the structure of the deal and further details about the fees. At this point, we only know there will be $2 million in fees, which is an exorbitant amount.

One other part of the story was wrong: "The agreement would have generated between $10 million and $13 million in upfront cash for the city and would have meant lower payments on bond indebtedness."

There was no upfront cash from the original refinance. Nowhere in the documents provided did it mention Jackson would get any upfront cash. A swap such as this consists of several different cash flows (which is why they are so complicated). Jackson was going to receive a cash flow every year that eventually would have reached a total of $10 million. However, the money was no sure thing, as several factors such as a change in Jackson or another party's credit rating, a change in interest rates, or a default, would have jeapordized the proposed $10 million.

What Jackson should do is suck it up and stick with the fixed interest rate it has now unless it can refinance for a lower fixed rate. It is true Jackson will pay a fixed interest rate in this deal. However, these swaps consist of several transactions and cash flows and those are based on adjustable interest rates. If they move in the wrong direction for any reason, Jackson will pay dearly for what little savings would realize. This deal should be thrown out along with the rest of the Melton administration.

WLBT story
WLBT video

earlier posts:
Stern Agee: Come get your bottle
Sterne Agee's connections
SEC going after JP Morgan for ripping off Jefferson County
Sterne Agee gets more money for "monitoring" swaps
Municipal Carnage caused by Wall Street
Jackson: paying $4 million in fees
Will Jackson end up like Jefferson County?

2 comments:

Anonymous said...

Keep after the dogs until they bark, Kingfish. This is journalism at its best. Don't let them hide under a rock. The full disclosure of the parties involved in this transaction should be front page news in the Clarion Liar.

Kingfish said...

They are not interested. I've tried to get Hampton and Goldstein to check into it but nope, not going to do it.


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Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.


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Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

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