CHICAGO — Minnesota’s general obligation offering statements have long opened with the line, “In the opinion of Dorsey & Whitney LLP” — whose namesake Arthur B. Whitney Jr. helped revise the state constitution to allow GO bond issuance. That decades-long tradition will end with the state’s next sale.
Minnesota Attorney General Lori Swanson, whose office holds sway over bond counsel choices for the Minnesota Management and Budget office and some state-related issuing authorities, has replaced Minneapolis-based Dorsey with Omaha-based Kutak Rock LLP on the state’s fall sale of $600 million to $700 million of GOs.
Kutak — which recently opened a Minneapolis office — was also picked to serve as bond and transaction counsel on the state’s tobacco securitization set for later this year.
Numerous public finance sources said Swanson’s office sent Dorsey & Whitney a letter in late July or early August terminating its services. Dorsey also lost its bond counsel position with the Minnesota Housing Finance Agency, which it has advised for at least 40 years. Kutak Rock will receive the agency’s work.
Sources said Dorsey’s replacement is part of a bond counsel review conducted by Swanson’s office that extends to other firms. Swanson’s office told various officials affected by the decision that conflicts posed by Dorsey’s representation of corporate clients drove the office’s move and it was time for a change.
Sources also said they heard Swanson’s office met with a handful of firms interested in working on state debt sales in recent months and that some firms submitted a lower fee structure for the same services provided by Dorsey.
Swanson’s office did not return several calls seeking confirmation of the changes or comment on the reasoning behind its decisions. The Minnesota Management and Budget office, or MMB, which manages state debt sales, referred questions over bond counsel to Swanson’s office.
Dorsey spokesman Bryn Vaaler confirmed that the attorney general dropped the firm as bond counsel to the MMB and the housing agency “for reasons unrelated to our work.” He declined to comment further or speculate on the reasons behind the change. “We have had a long history of great work in public finance for the MMB and the Housing Finance Agency,” he added.
The HFA’s chief financial officer and deputy commissioner, Patricia Hippe, said the attorney general’s solicitor general informed her of the change late last month and asked if the agency was comfortable with the selection of Kutak.
Hippe, who will soon leave to become CFO at the Colorado Housing and Finance Agency, praised Dorsey’s long tenure with the authority that dates back 40 years. “We have had a long and productive history with Dorsey & Whitney,” Hippe said. She added that Kutak has a strong housing practice and she expects the firm will serve the agency well.
The Minnesota Higher Education Facilities Authority does not currently work with Dorsey, but it received notice from the attorney general’s office that it would no longer be working with one of several firms it uses as bond counsel — Best & Flanagan LLP. Sources said the change was tied to “conflicts” in its work with the state and other clients. Best & Flanagan did not return a call to comment.
The Minnesota Public Facilities Authority uses Briggs and Morgan as it bond counsel. No change was made there, although several sources said Briggs dropped its fees to keep the work.
Dorsey’s ties to the state run deep and its prominent role as GO bond counsel has spanned both Republican and Democratic-Farmer-Labor party administrations. “It is stunning news. Dorsey has been the state’s bond counsel on general obligation bonds for decades,” a public finance participant said.
A Kutak Rock public finance attorney said public finance remains a core business line for the firm and that it was pleased to have won the state’s business but he declined any further comment on the firm’s selection over Dorsey.
Swanson, a DFLer who was first elected in 2006 and re-elected last year, was at odds with Dorsey over a 2009 opinion sought by state finance officials when then-Republican Gov. Tim Pawlenty proposed leveraging Minnesota’s tobacco settlement payments to raise $1 billion to help close a budget deficit, sources said.
Dorsey provided an opinion for MMB supporting the state’s ability under existing statutes to issue appropriation-backed bonds. Swanson took the position that such authority was not clear. The DFL, which controlled the state Legislature, killed the borrowing plan.
Republicans, who now control the Legislature, resurrected the idea this year to deal with a budget impasse as a state shutdown loomed ahead of the July 1 start of the fiscal 2012-13 biennium. A tobacco bond sale that raises $640 million in cash for budget relief was part of the agreement struck by GOP lawmakers and DFL Gov. Mark Dayton.
The legislation allows for the state to use either a more costly securitization structure or an appropriation pledge that would allow the state to capture lower interest rates. To tap the appropriation pledge, however, the state would first need to file a lawsuit seeking a court ruling on the use of an appropriation pledge before proceeding.
Most state borrowing carries a GO pledge, the least expensive method of borrowing given Minnesota’s high credit marks. The GOs are rated AA-plus with a stable outlook by Fitch Ratings and Aa1 with a negative outlook by Moody’s Investors Service. It retains its AAA rating from Standard & Poor’s.
In a review of state bond counsel rankings over the last five years provided by Thomson Reuters, Dorsey ranked first among counsel to the state. It worked on five issues totaling $1.8 billion last year. The firm also far outranked the pack among bond counsel on debt issued by Minnesota-based borrowers last year. It worked on 140 issues totaling $3.5 billion followed by Briggs and Morgan with 173 deals totaling $1.1 billion.
The firm, first established in Minneapolis in 1912, has grown to employ more than 700 attorneys in 19 offices in United States, Canada, Europe and the Asia-Pacific region. Arthur B. Whitney Jr., the firm’s longtime former head of public finance, helped revise the state’s constitution to permit general obligation bonding. He retired in 1984 after 40 years there and died in 1996.
