Milwaukee Delays Most of QSCB Deal

CHICAGO — Milwaukee yesterday sold $12 million of its planned $50 million qualified school construction bond issue for the Milwaukee Public Schools, putting the remainder off until next year, when it will use a negotiated sale.

The city, which was required initially to use a competitive sale for the general obligation issue under Wisconsin state law, took bids on Dec. 9 on the $50 million deal. After receiving only one bid on the tax-credit bonds, which were created in the federal stimulus package, at a slightly higher rate than city Comptroller W. Martin Morics' office had hoped to capture, officials decided to reject the bid and try again yesterday.

JPMorgan submitted the only bid at 7.72 % last week and officials had hoped to capture a rate that would limit its supplemental coupon rate to no more than 1.5%. The tax-credit qualifying interest rate is set daily by the Treasury Department based on a review of a pool of bonds. That rate was 5.94% last Wednesday. A number of underwriters had indicated to the comptroller's office that it had orders but not enough to fully place the bonds and so they were unwilling to submit bids.

"We give JPMorgan credit for being willing to underwrite the unsold position," said city debt specialist Richard Li.

Ahead of the sale, all three rating agencies affirmed the city's ratings. Moody's Investors Service rates the deal and the city's $784 million of debt Aa2 with a negative outlook. Fitch Ratings rates Milwaukee AA-plus with a negative outlook. Standard & Poor's rates it AA.

In the second sale attempt, officials allowed for partial bids. Milwaukee yesterday received a total of six bids from two underwriters. George K. Baum & Co. submitted five bids on a total amount of $26 million with rates ranging from 7.60% to 8.10%. Stifel Nicolaus & Co. submitted one bid on $1 million for 7.78%. The city ended up selling $11 million to Baum and $1 million to Stifel, paying a supplemental yield of 1.48%. The Treasury interest rate was set at 6.04% yesterday.

Milwaukee was able to put off some of the sale since there is not an immediate demand for all of the cash and the district has not indicated that it would seek city approval to also use its 2010 QSCB allocation. Proceeds are earmarked for various capital projects and maintenance.

The 2009 allocation expires at the end of the year unless transferred back to the state, though pending legislation would change that.

"If it were not for the opportunity to use this new program, we would probably not have had a bond issue for the schools until next year," said deputy comptroller Michael Daun.

Under state law, the city can shift to a negotiated sale after trying a competitive sale. Daun said the city intends to sell the remainder of the issuance through negotiation.

"It's clear to us that a negotiated sale is the preferred method for QSCBs," he said, adding that he hopes the delay will also improve market acceptance for the product.

The future control of the district is the subject of legislation that lawmakers could take up today in a special session called by Gov. Jim Doyle. The governor has proposed legislation that would hand the control of the troubled public school system over to the city's mayor, Tom Barrett. Lawmakers have said they are unlikely to act until an agreement between state and local officials is reached.

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Wisconsin
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