News Column

Los Angeles City Council wants out of 22-year interest rate swap deal

August 13, 2014

By Rick Orlov, Daily News, Los Angeles



Aug. 13--Complaining the city was victimized by Wall Street banks taking advantage of a sophisticated financial proposal, the Los Angeles City Council on Wednesday asked the City Attorney's Office to report on how it can get out of an interest rate swap deal without paying penalties.

At the same time, it generated a dispute between Councilman Paul Koretz and the City Administrative Office over future negotiations on the proposal.

Koretz, who has been leading the effort to renegotiate the rate swaps, said he does not trust the CAO's office on the issue because of the different opinions it has offered as to the benefits of the swap.

But CAO Miguel Santana said he was not in charge when the rate swaps were originally developed, and he has been trying to get the banks, New York Mellon and Drexia, to renegotiate the deals.

In 2006, the city agreed to interest rate swaps to reduce its borrowing costs for a wastewater treatment system. However, the city was unable to take advantage of the proposal because the recession soon hit. As a result, interest rates were driven lower, but the city was unable to refinance its debt because it was locked into the interest rate swap.

"We are stuck in this deal," Koretz said, adding the city signed a 22-year agreement, whereas private companies were using it for only one or two years.

Koretz said he wanted a report back within the next month so the city could resume negotiations with the banks.

City unions have been pushing the renegotiation as a way to free up tax dollars for other services. However, Santana said the money could not be used for general fund services because it comes from a special bond measure approved by voters for wastewater projects.

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Source: Daily News (Los Angeles, CA)


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