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City Finds Bond Financer

Agreement with Lord Abbett to finance Woonsocket's $11.5 million deficit bond is expected to be finalized today.

Finance Director Thomas Bruce is on the verge of a deal to secure the city's $11.5 million deficit bond and expects to finalize plans today once the city signs off on the offer. 

The investment firm Lord Abbett has offered to finance the entire sum, and Bruce will meet with Mayor Leo Fontaine this morning to go over the final numbers, including the premium on the deal which is expected to come with an interest rate around 6%.

"There's not much that would sway our decision," Bruce said of the offer. "We're very fortunate because there haven't been a lot of groups approaching us."

At the City Council meeting Monday night, Bruce announced a preliminary agreement with the financial firm for half of the bond ($5.75 million,) which the city needs to improve its financial rating and pay debt accumulated over the past three years. An offer to finance the entire bond came through Tuesday afternoon.

The offer will relieve some serious pressure for city officials who are under a March 8 deadline to secure the financing. According to Bruce, the city has $11.9 million in notes that must be paid on March 10 to avoid default. The city's junk bond status means the debt comes with no insurance and has made securing investors a challenge. Bruce and Fontaine have worked to pick up purchasers with a sales pitch.

"We have a pretty canned one hour presentation we've done a number of times," Bruce told the Council Monday night. The finance director and mayor have held multiple teleconferences on the issue from City Hall.

Some objections to the city's plans were presented at the council meeting by Albert Brien, who questioned the legality of the council's decision to add an additional $1.5 million dollars to the bond to resolve cash flow issues with the school department. 

"I don't believe what was enacted is in fact statutorily correct," Brien said. "The one and a half million to the school department... under generally accepted accounting principals and practices, this does not meet the definition of a deficit. This is not a deficit - this is a cash management issue. It's a payable and a liability, and that's it."

"You're taking a zero percent liability and converting it to a six percent liability - it doesn't make sense. This one and a half million dollars is going to cost us over four hundred thousand in interest." Brien indicated the decision could be challenged.

Bruce responded that bond council attorneys had verified the legitimacy of the action and a Feb. 7 letter by attorney Ellen Corneau stated that  "an acceptable use of the funding bond is for payment to the school department."

"We can't borrow short-term anymore this fiscal year. We have been called for by our auditors to get rid of this humongous $3.7 million liability to the school and this bond gives us a pretty direct way of doing it," Bruce said.

"In the purest form the school would have no cash of its own. It is in our interest to put ourselves in the position that immediate cash flow is not at risk," Council President John Ward added. "We are protecting ourselves from cash flow deficiencies. We do not have a pure Generally Accepted Accounting Principles deficit, we have a deficit plus a high risk of cash flow deficiency that would compromise the integrity of our financial statements and therefore, our ability to turn this thing around."

"There are some people in this community that are of the opinion that this should have gone to vote. It's a matter of principle," said Brien.

Councilwoman Suzanne Vadenais asked Bruce what would happen if the decision were challenged in court.

"We'll default. Whether the state would come in here and take over our public safety, fire and police... that might happen, based on what we've seen a little of in the past"

"The default would bring years of set-back to the city, when right now the plan as it stands, the deficit funding bond solution gets the city back into a normal financial profile in due time. After two years we should receive our investment bond rating back," Bruce said.

"Commitments from the brokerage houses are already being made. So those would have to be uprooted if we ever had to go through the shear madness and stupidity of a court challenge." 

"Make no mistake, a default is a very serious issue and why anyone would want to trigger something of that nature, I'm not sure," said Fontaine.

The council is expected to discuss the city's financial outlook for the rest of the year at a work session next Monday.

Lee Meyer February 23, 2011 at 01:16 PM
Did he just call the citizens of Woonsocket "stupid" Surely I hope not. Those that would challenge something like this in court would be for one reason only: The city pulled a fast on on the citizens by bipassing them and going to the General Assembly. What will they do next to get something else through. It is Principle. Not that we all can't see what needs to be done. Given a voice, the citizens do what is right 90% of them time. No one wants to see our city fail. Most of all the over burdened tax payers.
Erin B. February 23, 2011 at 04:17 PM
It's worth mentioning that the point of elected officials is so that qualified people, elected by the people, make decisions based on the best interest of their constituents. Without getting into the debate of whether that ideal holds true all of the time, I think that this case especially is one best left to those with all of the information. Ask the next 10 people you see, at random, what their knowledge of the situation is and what they would do for it. I would venture to say that at least half would have little to no idea of the issue, let alone how the proposed solutions would affect the City. It's not saying that Woonsocket's citizens are stupid. It's that many are not involved in or aware of their government's actions. The same is true of many places and people across this country. I have no doubt that everyone wants the best for the City, just that not everyone knows the best possible route to that goal.
Sandy Phaneuf February 23, 2011 at 06:05 PM
To be fair, I believe it was clear at the meeting that he was saying it would be a bad decision - not that Woonsocket citizens are stupid. Because of what is at risk for the city and even the state if we were to default, he was among several members of the administration that were confused as to why anyone would consider a challenge at this point in the process.
JohnC February 23, 2011 at 09:10 PM
Sandy- Mr Brien has tons of experience in dealing with fast ones pulled by this and previous administrations. Enough to know that the 1.5M addition to this bond could be found to be illegal. All he is doing is ensuring that we don't end up defaulting because, upon scrutiny, the bond is cancelled because of shifty practices? As a post script- I have known Leo for almost 30 years and I can tell you without a shadow of a doubt- he would never call anyone stupid to their face. THAT is not his style. I hope that this has the effect that the administration is hoping for? We need a better plan for our future. I am knid of getting tired of the tax coalition though, where were then when we went for several years without increases?? jumping for joy I would imagine? Did they not think that that would not catch up with us eventually??I always did, but I wouldn't be allowed on Larry's talk show with questions like that!
Susan Pawlina February 23, 2011 at 09:53 PM
John I hope you don't mind the new sewer bill that is coming your way. You know the one that was talked about at the last city council meeting. How many good questions do you think were asked ? How any bad questions where asked? the answer 0 . I'll bet you are thinking of all those good questions that were asked in the work session. You my friend would be wrong. The paper work detailing this project must have take the city council hours to go over. Right? Don't fool your self, stick figures, 5 pages need I say more . Go and be tired of the tax coalition. You're right, they are your problem.

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