The D.C. government yesterday for the first time marketed long-term general obligation bonds totaling $80 million after obtaining a rating from Standard & Poor's that a top city official described as "a little disheartening."
The tax-exempt bonds, which will be used to refinance loans from the U.S. Treasury, were sold by an underwriting syndicate headed by Salomon Brothers Inc. Other syndicates headed by Morgan Guaranty Trust and First Boston Corp. also submitted bids.
With an A rating from Standard & Poor's and a Baa rating from Moody's Investors Service -- two to three grades below the highest possible ratings -- the bonds carried an average interest rate of 10.14 percent.
By contrast, the interest rates on the old Treasury loans ranged from 12.4 percent to 13.9 percent. By refinancing the Treasury loans, the city expects to save $63 million in interest costs over the 27-year life of the bonds.
Mayor Marion Barry said he was pleased the city attracted "such an excellent bid on our first sale of bonds."
However, Alphonse G. Hill, deputy mayor for finance, complained that the somewhat disappointing bond ratings had been based on budget forces and federal policy decisions beyond the District government's control.
"What upsets me is that those are things we can't fix by ourselves," Hill said. "It's a little disheartening."
Standard & Poor's, in issuing its rating, said that the city has made "sizable, measurable improvements" in its financial management and in reducing its accumulated deficit.
However, the rating service was critical of the lack of a forumla-based federal payment to the District, the city's $3.4 billion unfunded pension liability, the escalating cost to the District of the Metrorail system and other factors.
The District bonds were marketed in multiples of $5,000 -- a technicality that drew criticism from Robert C. Apfel, a Wall Street investment banking counselor who claims city officials made it difficult for middle-class D.C. residents to invest in the relatively high-yield bonds.
According to Apfel, a number of jurisdictions, including Maryland and Utah and the cities of Philadelphia, Anchorage and Las Vegas, have marketed bonds in smaller denominations.
Hill said that "I'd love residents of D.C. to buy the bonds," but that officials simply hadn't considered the need for issuing them in smaller denominations.
"It's just an issue we haven't raised," he said. "I just don't know how much need there is for it."