In The News › City secures line of credit

May 16, 2006

Source: Times-Picayune

City secures line of credit

City secures line of credit
Nagin: Bankruptcy option laid to rest
Tuesday, May 16, 2006
By Frank Donze
Staff writer

Nearing the end of a runoff campaign that has seen his ability to get things done repeatedly questioned, Mayor Ray Nagin said Monday that he has secured a $150 million line of credit that will keep New Orleans city government afloat through 2007.

Nagin, who revealed few details in making the announcement, said Monday’s pledge of help from a consortium of four financial institutions, led locally by JPMorgan Chase Bank, should allay concerns that the city may go bankrupt.

The announcement comes after weeks of behind-the-scenes negotiations and just five days before voters decide whether Nagin or Lt. Gov. Mitch Landrieu will lead the city’s recovery from Hurricane Katrina over the next four years.

City Hall’s fiscal health has been a major bone of contention in a mayoral race where former candidates openly accused Nagin of sugar-coating news about a government on the verge of running out of cash.

“Hopefully, now we can stop with this silly conversation about going bankrupt,” Nagin said, standing on the sidewalk outside Chase’s St. Charles Avenue headquarters. “The city of New Orleans is not going bankrupt. So just put that ‘B’ word out of your mouth and put something else in your mouth.”

The reference appeared to be directed at Landrieu, who has frequently asked Nagin about the progress of the financial aid package at forums and debates over the past three weeks.

Favorable rate

Asked about specifics of the credit line, Nagin referred all questions to John Kallenborn, the New Orleans president of JPMorgan Chase, who brokered the deal.

Kallenborn, however, declined to elaborate on terms of the credit line other than to say that it would be available for three years and features a “very favorable” interest rate for the city. Details will be available, he said, once all the paperwork is signed in the next week or so.

He would not name the three other participants, saying only that they are two French banks and one other U.S. bank.

Kallenborn said the city will be charged an undisclosed fee even if there is no need to draw on the credit line. He said JPMorgan Chase is committed to $55 million in loans — $5 million more than the bank had previously pledged — while the other banks have promised respectively, $55 million, $30 million and $10 million.

Nagin administration officials first met on April 6 with Kallenborn and representatives of 10 other lenders, including several foreign banks, to discuss the proposed $150 million debt placement.

Kallenborn said reaching agreement on the deal “was a bit of a tricky situation” because the city’s storm-ravaged economy has slashed City Hall’s revenue stream by about $200 million. In fact, he said, the fourth bank in the deal did not sign on until Monday morning.

“We had to sell the confidence that the revenue stream would rebuild and I think that’s what we were able to do,” he said, noting that he expects the local economy to rebound after tens of billions of dollars in homeowner insurance payments begin circulating.

Some breathing room

And if the city can tap into other sources of money such as federal or state grants, Kallenborn said, “There is no mandate that this line of credit be used.”

In the meantime, he said, the agreement “really buys the city a lot of breathing room and a lot of operating cushion to go ahead and get about its business and not have to worry about the word the mayor won’t let us use.”

Sales taxes, which provide the city’s largest source of revenue, are projected to decline from $151 million in 2004 to $69 million in 2006, largely because the city’s tourist economy is still sputtering nearly nine months after the storm.

City officials also are projecting huge declines in revenue from property taxes, sanitation service fees and parking meter fines.

The fiscal outlook is so dire that the Public Affairs Research Council and the Bureau of Governmental Research, two government watchdog groups, recently urged local officials to consider seeking bankruptcy court protection, which would allow New Orleans to reorganize its finances without worrying about paying current debts.

But Nagin said sales tax collections have been coming in above projections in recent months. As a result, he said, it likely will be late summer at the earliest before the city has to use the credit line.

Until then, he said, city government will continue to “hold the line” on expenses, which means no change in once-a-week residential garbage collection and fire and police response times that are longer than before Katrina.

While the city work force will not expand, Nagin said he hopes to be able to add police officers.

Nagin said the decision by the banks to step up is particularly significant in light of Wall Street’s recent lowering of the city’s bond rating to “junk” status.

“For banks to now come forward and say we are confident enough even with that condition is pretty amazing,” Nagin said.

. . . . . . .

Frank Donze can be reached at fdonze@timespicayune.com or (504) 826-3328.

May 16, 2006

Source: Times-Picayune

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