- Stevens Institute of Technology
- Pay to Play
- Content Research Area
- Quality of Life Issues
- OPRA (Open Public Records Act)
- Bribes, Payoffs, and Politics
- Letters to the Editor
- Voter Information
- OPMA (Open Public Meetings Act)
- FREE SPEECH and INTERNET ISSUES
- Eminent Domain
- Governor Corzine
- Lawsuits and Legal Actions
- Hoboken News
- Health Issues
- Employment Opportunities
- Regionalize and Shared Services
- Investigations (Restricted Access)
- Public Official Report Card
- Political Commentary
- Payments In Lieu of Taxes
- Consumer Issues
- Affordable Housing
- 2006 N.J. U.S. Senate Race
- U.S. Senator Robert Menendez
- Homeland Security
- NJ NY Port Authority
- R.I.C.O. Act
- Editorials - New Jersey Newspapers
- POG - People for OPen Government
- Investigative Agencies
- Hoboken City Council Video
- Presidential Election 2008
- Investigative Report
- Area Event Calendar
- Presedential electiom 2008
- New Jersey League of Municipalities
- NJ State Court System
- National Politics
- Social Interaction
- Shrink for Men
- Governor Chris Christie
- Tenant Rights
- NJ League of Municipalities
- NYC GROUND ZERO
- Political Figures
- Health Care
- Hoboken Lawsuits
- Featured News
- IRS TAX RELIEF
- Federal Budget
- Healthcare Fraud
- New Jersey For Profit Hospitals
- Hudson County Emergency Medical Services
Canceling bond deals to cost state millions
- Categorized in: New Jersey Budget Crisis
Canceling bond deals to cost state millions
Banks to get huge fees after market crashed
Wednesday, April 23, 2008 Star-Ledger
[New Jersey] Taxpayers are scheduled to pay a New York investment bank $12 million this week to back out of an ill-fated deal that was supposed to lock in low interest rates on state bonds for 20 years.
The fee to Merrill Lynch comes on top of the tens of millions of dollars already paid out by state agencies, hospitals and colleges since the once-placid market for bonds called auction-rate securities collapsed amid investor skittishness in February.
"It's just another example that we need greater regulation in this area," said state Sen. Leonard Lance (R-Hunterdon), sponsor of a bill that would require state officials to disclose the risks and fees associated with proposed transactions like swaps.
Until troubles arose in mid-February, auction rate bonds offered borrowers like New Jersey the opportunity to receive relatively low short-term borrowing rates on long-term loans by offering the loans for resale at auctions held every day, week or month.
The market seized up in February when investment banks, short on cash due to rising mortgage defaults and concern over the solvency of bond insurers, stopped buying the bonds at auction. Under terms of the deals, failed auctions triggered steep hikes in interest rates, pushing rates on some loans to 20 percent.
Since the market collapsed two months ago, interest payments on New Jersey's auction-rate holdings have jumped by $1.8 million a week. In addition, the state expects to pay underwriters, lawyers and other professionals up to $17 million to issue new bonds to replace the auction-rate loans, including more than $3 million to replace bonds issued just last October.
Millions more, including the $12 million Merrill Lynch is scheduled to collect this week, are going to pay investment bankers to cancel or amend the terms of complex interest rate swaps that were set up in connection with the auction-rate deals.
That payment to Merrill Lynch is for canceling a 20-year interest rate swap deal 14 years ahead of schedule. The swap involved $87 million borrowed for the New Jersey Sports and Exposition Authority in 2002
"The bottom line is, it's going to be a long time before we untangle this web of deals," said state Sen. Barbara Buono (D-Middlesex), chairwoman of the Senate Budget and Appropriations Committee. "The sad thing is, this is going to reduce the amount of money we have for other programs."
It would cost the state $513 million to cancel all 33 swaps in the state's portfolio ahead of schedule, according to the state's latest accounting through March 31.
The rush to cancel these deals continued this week:
Yesterday, when the College of New Jersey borrowed $291 million to replace auction-rate holdings, the deal included $17.3 million to cover the cost of cancelling three swaps deals early.
Atlantic Health System, operators of Morristown Memorial Hospital and Overlook Hospital, paid $6 million to cancel a pair of swaps deals as it extracted funds from the auction rate market this week.
And across the state line, the Pennsylvania Turnpike Authority has budgeted up to $8 million for payments to two Wall Street banks to amend a $160 million swap arrangement.
Despite the fees, Kevin Shanley, Atlantic Health's chief financial officer, said swaps and auction-rate bonds have saved the hospital system $25 million a year in borrowing costs for decades.
"The swaps make a hell of a lot of sense," he said. "I think they did extremely well over the past 25 years. This is one instance where they didn't."
New comments are currently disabled.
Email to Friend
Fill in the form below to send this article to a friend:
- HAS PREDATORY HEALTH CARE LENDING COME TO HOBOKEN?
- The Emotionally Abusive Personality: Is She a Borderline or a Narcissist?
- Withholding Sex as a Form of Punishment
- Don't Marry Essay. Why Marriage Has Become a Raw Deal for Men
- NJ Business Facts
- What the Parking/Transportation industry is saying about Hoboken's Automated Garage
- You can put lipstick on a pig, but it's still a pig
- Hoboken Board of Education
Recent Employment Opportunities
- Technology Consultant - City of Hoboken
- Finance Director City of Hoboken
- ELECTRICAL INSPECTOR
- Civil Service Commission Seeks Entry-Level Firefighter Applicants Applications for the entry-level Firefighter Test will be accepted for 70 municipalities and other local jurisdictions
- Senior Accountant: Stevens Institute of Technology, Hoboken, NJ
- City of Hoboken - Fire Department Audit
- Hoboken: ZONING OFFICER