While speed is desirable to avoid financial difficulties for the city’s stretched cash flow, Council members worried that using the ordinance introduced during the previous advisor’s tenure would strengthen her case in her suit against the city. “Wouldn’t we be liable to pay her if we approve that ordinance?” asked Council Member Junior Maldonado. Arguing against haste, Council member William Gaughan said voting on the refunding would be a “Stretch. I don’t see how we can consider that.” Gaughan said that the only resolution he could see backing is approving Acampora as Financial Advisor.

Acampora’s proposed contract calls for a payment to the advisor of not more than $30,000, with the usual and customary provision of the typical fee of $1 per thousand dollar bond and an hourly rate of $150, not to exceed the stipulated cap of $30,000. The resolution calls for retaining Acampora for the one debt restructuring transaction only.

Capital Financial Advisors’ resume submitted to Council Members shows an extensive list of completed transactions since Acampora began the firm in 1993. The firm’s other professionals have experience in County and State Government though the materials distributed do not specify which County. Materials distributed on the firm’s background show that CFA has completed 112 financings in the last three years. All but five of those issues are education related, for Boards of Education or public institutions of higher learning. Not surprisingly, one of the professionals of the firm is a former official of the State’s Department of Education, Division of Finance.

The five non-school related municipal issues listed, most comparable to the pending transaction in Jersey City, were all entered into on behalf of Cherry Hill with transaction sizes ranging from $5.8 to $26 Million. Though Ms. Acampora stated that she or her firm had had experience with transactions as large and complex as the one contemplated at this time by Jersey City, $335 Million and replacing 28 outstanding issues, the transaction list CFA furnished showed the largest municipal transaction at $26 Million in a Cherry Hill Refunding issue. The largest single issue listed was $112 Million for Princeton University. By contrast the previous Financial Advisor had participated in transactions as large as $1.2 Billion for the Bay Area Rapid Transit System, an autonomous agency of San Francisco. One financial professional, who asked not to be identified, said, “One is a Hyundai and the other is a Ferrari. Ferraris cost more. You get what you pay for. That’s a whole other league.”

CFA was selected by Ayala, meeting with several prospects along with Mayor Cunningham and finance director Sengco, “and a couple of others” who Ayala did not identify. Ayala said CFA was chosen from four prospects interviewed by the group. Names on the short list of four all came from a list of recommended advisors supplied by a State Finance Official.

The previous advisor had also charged a $1 per bond fee, but with a cap of $100,000 per financing. The advisor’s fee cap, though well known, was ignored in statements by the city’s director of Finance, Serafina Sengco, to the Council, who said that the previous advisor would have charged $335,000 for the same restructuring transaction, despite the cap. The terms of the last advisor’s engagement were generally well-known, yet Sengco insisted, over the objection of Business Administrator Carlton McGee, that the fee could have been as much as the enabling legislation allowed at the per bond rate. The usually subdued McGee became visibly agitated when Sengco insisted that the fee would have been $335,000 with the past advisor. McGee insisted that Sengco withdraw the remark and apologize for quoting the fee at $335,000,”Never have you seen a fee of $335,000. You owe that lady an apology.”

A blank check ordinance has been introduced at the council’s last meeting without specifying details of the transaction, but authorizing the sale of up to $335 Million in bonds. A transaction of that size would have resulted in a fee of $335,000 to the advisor, without the $100,000 cap.

The city’s previous financial advisor, Charlotte Knight-Marshall of the Knight Group was unceremoniously terminated in a tersely worded email from Ayala informing her of the Mayor’s decision without citing a reason for the termination and despite the fact that the city apparently still owes Knight $90,250 for work already done on prior transactions. In those prior transactions for which the Knight Group has not yet been paid, Mayor Cunningham signed closing documents naming Marshall as Financial Advisor in the transactions.

When Knight-Marshall proposed a debt restructuring plan that would avert a certain default and smooth year-to-year fluctuations in debt service requirements to a level the city could live with, critics of the plan focused on additional debt service requirements the plan entailed and aspects of the advisor’s employment by the city. Detractors focused on the previously relationship that existed between Knight and Business Administrator Carlton McGee.

McGee had previously worked for the Chief Financial Officer of the City of Chicago and Knight had been advisor to Chicago in connection with bond issues by Chicago. Detractors also pointed to Knight’s status as financial advisor without a contract or other agreement in place. They also complained that the Knight group was selected without having gone through any competitive process to win the appointment to the position.

Acampora also said that she had previously been involved in transactions as large and complex as the proposed $335 Million proposed restructuring transaction. The complexity of the transaction was part of the problem leading to Knight’s termination. Part of the presentation materials Knight used referred to the proposed transaction resulting in $200 Million in “additional debt service.” Taken out of context, that could be construed as costs to the City that the city would not otherwise incur. But the transaction proposed dealt with contingencies that cannot be ignored including the certainty of default due to a structural deficit. One highly placed official who would speak only off the record said, “That statement is true only in a vacuum,” referring to the additional debt service mentioned in the proposal materials. In fact, Knight’s proposal for a comprehensive solution to the city’s recurring debt problems won praise from officials of the State’s Local Finance Board whose approval is need for the issuance of debt. That board approved the aggressive plan by a vote of seven to one.

But bond counsel Chris Walrath emphasized that time is of the essence and ticked off reasons for concern, not the least of which were rising interest rates and the looming default event early next year. A debt service obligation will come due early next year at a time when the city will not have enough cash on hand to make the payment unless something is done expeditiously, according to Walrath. Knight had been strident in her warnings about this possibility and urged a speedy decision. Knight had also pointed out frequently that since the proposal she devised was devised in late July, interest rates had gone up by 175 basis points, or one and three quarters percent. If the current ordinance is not used, then there will need to be a new ordinance introduced requiring a further council meeting and an additional waiting period. The additional waiting period would mean missing the Local Finance Board’s last meeting of the year and waiting for the needed approval until next year bringing the City perilously close to default.

Meanwhile, contacted in Chicago, Knight said that since the City was not willing to pay her outstanding bill of $90,250, she would no longer ask for only that amount, but for additional as yet unbilled amounts for hourly work already done, but not yet billed. That would bring her claim against the city in the possible suit to $150,000 or more. In addition, Knight pointed out, she has been joined in her suit by Herbert Hardwick, an attorney who served as disclosure counsel and who is also owed about $40,000 for work already done and billed, but not paid. That makes the total between the two, terminated at the same time, $190,000 plus expenses. It is unclear how saving $70,000 on the advisor’s fee will offset these expenses that are apt to go up if litigation drags out.

Knight made one other key point concerning the city’s financial posture. “The local finance board applauded the plan, but they also told us not to come back. They said go and do it, but they also said that they did not want to see us back before the local finance board with this same nonsense ever. They said if you do come back we will not approve.”

Follow Ups:

• STEEL CAGE DEATHMATCH WeezilDeal 22:00:49 11/13/03 (0)
• Re: BOND REFI-CLOCKS RUNNING, TEMPERS FLARING, RATES RISING Ayala is a bonehead 15:16:18 11/13/03 (4)
  • Re: BOND REFI-CLOCKS RUNNING, TEMPERS FLARING, RATES RISING Holding My Breath (and my Nose) 16:06:49 11/13/03 (3)
    • But, if Peepers 16:32:34 11/13/03 (2)
      • Re: But, if Holdin my Breath 21:37:45 11/13/03 (1)
        • Re: But, if unknown 13:35:31 12/22/03 (0)