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Future of Malachi swap unknown

Published 12:39am Sunday, March 25, 2012

Holloway said he does not believe either he or the aldermen fully understood the complexity of the swap transaction in 2006.

“When they first came to us, I had never seen anything like it,” he said.

Holloway said since the original swap, he has gained a better personal understanding and knowledge of swap transactions.

The aldermen recently voted to draft the paperwork for a modification to the swap after Malachi representatives came to the aldermen in February offering to modify the agreement and make a projected $300,000.

If the transaction can generate the target floor amount set at $250,000, the city will pay approximately $80,000 in transaction and legal fees. Malachi’s Chief Executive Officer Porter Bingham told aldermen in February the city would pay approximately $50,000 in advisory fees and approximately $25,000-$30,000 to outside legal counsel.

Holloway said if the swap modification does not generate at least $250,000, the city will not pay the fees and will not be out any money.

Previous Malachi transactions

Malachi Financial Products is an Atlanta-based financial company and is not affiliated with Malachi Financial Group in Ridgeland.

In February when the swap modification was announced and approved in an aldermen meeting without prior public notice, a number of city residents questioned the transaction and Malachi’s credentials and whether or not the city’s leaders understood the deal to which they were agreeing.

According to Financial Industry Regulatory Authority documents, Bingham was fined $10,000 and had his registration suspended for a year in 2007 for multiple violations of the Securities and Exchange Act.

FINRA is the largest independent regulator of financial securities firms in the U.S.

The violations included failure to keep current and accurate books and records regarding Malachi’s business, including balances, general ledgers and net capital calculations. FINRA records also show Bingham failed to file Malachi’s annual audit on time for its 2004 and 2005 fiscal years and violated the authority’s conduct rule.

But Bingham said Malachi has never been involved with a swap transaction that did not produce positive results. Bingham said Malachi has executed transactions similar to the ones with the City of Natchez with municipalities all over the country, including the City of Jackson and Hinds County.

The swap transactions in Hinds County drew scrutiny after routine annual audits of the county’s finances noted the complexity of the county’s swap transactions and the county’s inability to effectively monitor the transactions.

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  • Anonymous

    There is no mention in the article that I see to state what the outstanding balance on the debt will be if this transaction is completed.  It appears this is tech speak for a refinance that increases the debt to hold out money to the city and Malachi, and even though stated the additional money to “pay debt” seems to leave open the opportunity to blow it for other purposes by the city.  If this is such a great deal, why is Malachi the only one who has approached the city on this subject? What happened to the competitive bidding standards used for other financial transactions not being used in this case? If he has been scrutinized by the SEC in other cases what were their outcome, not mentioned? These and a lot of other questions need to be answered by someone who really understands this transaction, not those who indicate they did not fully understand last time.

  • Anonymous

    Ricky playing the race card again. A more legitimate question might have been this—ONLY after the BOA, the Mayor, and Mr. Holloway believed they truly understood the complexities of this kind of financial instrument, why did they not shop Malachi’s offer around to see if any other companies could offer better?

    All in all, I don’t have confidence that our leaders have the acumen to fully understand al of the costs and potential risks of an interest swap. Not many people (including myself) do. This is an inappropriate vehicle for a municipality that can’t afford to lose what little it has.

  • http://www.natchezdemocrat.com khakirat

    OSG I total agree with you for I don’t even like the name Malachi!! The ND what is the total principal for I know if you would print it people will leave Natchez by the dozens either across the river or county??!! This is the same scab that was started by Butch Brown and his followers so city folks be careful who you vote for being you got a mountain of debt to pay off!!!!! Good luck!!!!!

  • Anonymous

    Candy from a baby?

  • Anonymous

    “A bond swap is a complicated financial transaction in which one entity, in this case the city, agrees contractually to “swap” a payment usually based on a fixed-rate interest index, with another entity whose payment is usually based on a variable rate.”

    That is highly speculative and the city has no business engaging in such.  Malachi took Hinds County as well.  I’ll say this for Bingham, he’s a heck of a salesman.  None of the Hinds supervisors could tell the local media exactly how the deal worked yet they went for it anyway.

  • Anonymous

    Bottom line–there is no one–NO ONE–at the City of Natchez who could possibly understand this very complex financial transaction, and yet no one–NO ONE–not the current mayor and not the current city clerk and not the aldermen will call in someone who can explain this to them–and to us–in plain English and advise them on the best course of action.  The only thing that I recall from the 2006 transaction is that the city ended up with considerably less of an upfront payment than Malachi had promised.  Do we have to throw all these elected officials out of office in June in order to get some leaders who will get the answers for us?  It appears so.

  • Anonymous

    you are absolutely right oldsouthgent.  why are we entrusting our city’s future to the city clerk, mayor and alderman, all of who say they don’t understand it. 

  • Anonymous

    Even though I retired as a bank examiner 15 years ago, I recall how complex interest rate swaps, derivatives, etc. could be. I had a specialized cadre of experts who reviewed these products in all the larger banks in the SE. Trying to assess the risks and determine if proper controls were in place. I was based in Atlanta and never hear of Malachi. Wonder why the city did not do business with the capital markets section of one of the larger banks?

  • Anonymous

    The mayor was eager to hire someone (lawyer recommended by the other lawyer) to explain the recent and infamous “third amendment” yet they couldn’t take the time to get some outside expertise before they voted.  I guess they just knew they were going to have all that money from the new casino and don’t need to worry about the loss.  

  • Anonymous

    With your expertise, could you enlighten us on the following questions:
    1) Isn’t this essentially a refinance with money being added to the principal due to create the funds to pay the city and Malachi?
    2) Why in anyone’s right mind would you refinance from a fixed rate to a variable rate when interest rates are at an all time low and nothing but interest increases on the horizon for a variable rate loan?
    3) Is it legal for the city to add to the principal in this manner?
    4) Can the city use the resulting money for any type expenditure other than paying down debt as noted in the article?

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