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Tuesday, February 2, 2010

B of A gets the Paulson stadium deal, for now

The City of Portland has disclosed that they're negotiating behind closed doors this week with Bank of America for the $12 million line of credit to pay the taxpayers' up-front share of the costs for the re-renovation of PGE Park for "major league" (by U.S. standards) soccer. The "interim" line of credit, scheduled to close this Friday, is expected to remain open for as long as three to five years, after which permanent long-term bonds will be needed. By the time those bonds are issued, of course, the construction will be finished.

Last summer, reports were that the final I.O.U.s for the stadium debt would be subprime, "zero coupon" bonds, meaning that the city will make little or no payments until one or more large balloon payments at the end of their term. Under current market conditions, the mayor said at that time, the bonds couldn't be sold in the open market at all. Which means that the city is apparently gambling that the municipal bond market is going to improve dramatically between now and the time that payoff of the interim line of credit is due. Even in an improved market, the interest rate on the debt is likely to be high.

Also back in the summer, there was much discussion about the fact that the Paulson family was undertaking to assist the city with selling the bonds. On a quick look through the daunting pile of documents that the city is now planning to enter into with the Paulsons and their business entities, we can't find any mention of that assistance in the deal that the City Council will be approving on second reading tomorrow. If by some chance the city couldn't sell the new bonds, then the city's general fund would be at risk to repay the line of credit.

We've written about the city's affection for "interim" borrowings here before. Portland employs them regularly with its "urban renewal" projects. There are a couple of hundred million dollars' worth of these debts outstanding, much of them with Bank of America. The details of the deals are not publicized, and even the fact that they are being negotiated is not posted anywhere on the city's website.

In this case, a quiet request for proposals was mailed to a secret list of banks and posted in the city's financial press, and four banks submitted proposals last Wednesday. The unsuccessful proposals came from Chase, Umpqua Bank, and Wells Fargo. We've asked to see the four proposals but have been told we will have to wait until the city checks with the banks to see if there was any "proprietary information" in their proposals that the banks don't want the public to see. No word on when we might have answers to that question.

Comments (5)

Goldman Sachs could easily cover the $12 Mil but that might look as being a little over-cozy for some. Wouldn't want to fuel any claims of an inside deal.

It wouldn't surprise me if the entire zero coupon bonds thing never happens - it could be a charade. I can hear the speech now:

"When we entered into this agreement, we had no intention of using the general funds to pay for it, but nobody can see the future, and now that it's time for the zero coupon bonds we have determined that they would be an unfair burden on the City of Portland.

Therefore we have decided to repurpose the money from somewhere else and our options are few. Needless to say, everyone at city hall is extremely upset about this. We need to know how this process got derailed and why it didn't produce a good, transparent result. We are studying that. Meanwhile, our solemn pledge to you here today is that it will never, ever happen again."

There is a referendum process to refer this to voters.


If only someone would step up, then again, Sam Co is banking that no one will.

I'm sure the city takes the position that it's too late now for a referendum -- the ordinance authorizing the bonds was passed last summer.

If Bank of America has the money to "lend" to this...why not make this a true private-private partnership? Why does the City even need to be involved; aside from permitting the project, building permits, etc.?

And, since the City of Portland is on its "local" campaign to discourage outside business, why Bank of America, and why not any number of LOCAL banks (I'll even count U.S. Bank since it has a sizable corporate presence still in Oregon, whereas BofA does not)?

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