City receives $250K swap fundsPublished 12:12am Thursday, June 21, 2012
NATCHEZ — The City of Natchez received last week the $250,000 that was generated from a recent modification to a complex 2006 financial transaction.
The original interest-rate swap transaction was executed in 2006 with Malachi Financial Products and refinanced the 1999 bond the city issued to build the Natchez Convention Center.
City Clerk Donnie Holloway said his office received the money Friday. He said he has paid the $15,000 in legal fees owed to Tony Gaylor of Chambers & Gaylor law firm, the city’s outside counsel for the transaction. Holloway said he will pay the $5,000 in legal fees for the transaction to City Attorney Everett Sanders this week.
Gaylor told the Natchez Board of Aldermen at its May 22 meeting that the modification to the interest-rate swap transaction did not generate enough money to cover the legal fees.
The board approved the modification in March with the condition that the transaction would net the city $250,000, and all legal and advisory fees would be paid with the excess money generated from the transaction.
The city, however, did not pay any advisory fees to Malachi Financial Products, the city’s financial advisory firm, or Rice Financial Products, the transaction’s restructuring firm.
Malachi Chief Executive Officer Porter Bingham told the aldermen in February the city would pay approximately $50,000 in advisory fees. Holloway said, though, when Bingham informed him the swap did not make enough to cover to the fees, it was agreed that the city would not pay the advisory fees.
“They couldn’t take any fees because that is not what the board agreed on,” Holloway said.
The fees for Malachi Financial and Rice Financial were paid by The Bank of New York Mellon, the lead agency in the swap, Holloway said.
Gaylor told the aldermen the transaction was highly scrutinized by the Mississippi Development Bank, which guarantees the convention center bond.
Holloway told the board that he received a call from a representative of the Mississippi Development Bank Friday morning who said if any fees were to be taken out of the $250,000, the bank wanted to know about it ahead of time.
Mississippi Development Bank Executive Director and Treasurer Bill Barry said the city requested the bank sign off on the modification to the transaction.
“The thing we were concerned about was the net amount with the city,” Barry said.
The city technically netted $250,000, Barry said, and whatever fees were paid out of that money were up to the city.
“The City of Natchez is happy about it, and we are too; we are fine with it,” Barry said.
The board of aldermen initially voted 4-3 to turn down the $250,000 at its May 22 meeting after some aldermen’s frustration that the legal fees would have to be paid out of the $250,000. But, three days later, the aldermen voted to accept the $250,000. Gaylor informed the board that not accepting the money would terminate the already approved transaction and cost the city $300,000.
Gaylor said the modification to the agreement actually suspended the original transaction for four years to allow the city to receive a lump sum of up-front cash savings. Gaylor said in four years, the aldermen will have the opportunity to review the transaction and decide whether to continue with it, go back to the master agreement or terminate the transaction. The transaction is set to end in 2024.
Holloway said the city made a $435,000 payment on the convention center bond Tuesday. He said the city has approximately $10.3 million left to pay on the bond.