State Authority Finds Guarantor for Bond Issue

By Fears, Ronda | THE JOURNAL RECORD, July 7, 1989 | Go to article overview

State Authority Finds Guarantor for Bond Issue


Fears, Ronda, THE JOURNAL RECORD


The Oklahoma Industrial Finance Authority salvaged a $10 million bond issue Thursday by securing a substitute guarantor after Dai-Ichikangyo Bank Ltd. of Japan reneged on a letter of credit late last week.

Mitsubishi Bank Ltd., also of Japan, was approved as the letter of credit bank in a brief special meeting of the authority. The letter of credit had to be secured before the bond issue could be closed, which was set for Thursday.

Dai-Ichikangyo Bank is the largest bank in the world; Mitsubishi is ranked fourth.

Jay Casey, president of the authority, said Dai-Ichikangyo Bank notified the authority Friday that it was withdrawing from the transaction because of the interest rate cap of 14 percent placed on the authority by Oklahoma law.

Stan Provost, who became state bond advisor in September, said this is the first instance he has come across in which a letter of credit bank withdrew from a bond issue due to the interest rate cap.

"This is somewhat unique to Oklahoma," said Provost. "Most states don't have caps on interest rates.

"From a market perspective, caps are not desirable."

Oklahoma law does not directly place an interest rate cap on obligations of the authority, but requires that entity to issue bonds through local development authorities, to which the 14 percent interest rate cap applies, Provost said.

John Martin, financial advisor to the Oklahoma Industrial Finance Authority, said Thursday there had been some indication that Dai-Ichikangyo was uneasy with the terms of the transaction during negotiations of the reimbursement agreement last week, but did not cut away from the deal until about noon Friday. That caused a scurry because the bonds had been sold and were due to be delivered Thursday, Martin said, a financial consultant with Stifel Nicolaus & Co. Inc. in Oklahoma City.

The bonds were issued for 30 years at a variable interest rate beginning at 9. …

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