Anaheim Offered $75-Million Line of Credit : Finance: Bank funds would help city repay loan of $95 million due in April.
ANAHEIM — The city has been offered a line of credit of up to $75 million by the Industrial Bank of Japan to help repay a $95-million loan due next month, city officials said Monday.
Anaheim borrowed the money last March to invest in the county’s investment pool, which collapsed late last year. In all, the city had a $169-million investment in the fund, representing about 20% of its $874-million investment portfolio.
Although the county is in the process of reaching a settlement that provides investors 77% of their money, cash disbursements are not expected until after Anaheim’s loan is due April 4, according to Ed Zacherl, city assistant finance director.
The City Council is expected at its meeting today to authorize a law firm to finalize the details of the line of credit. Money the city borrows through the line of credit can also be used for other cash-flow needs over the next year.
Anaheim would not be the first government agency to receive a line of credit from Industrial Bank of Japan since the financial crisis hit the county. The Orange County Transportation Authority received a $78-million line of credit in December to pay some of its loans.
The line of credit offered to Anaheim has an estimated 30-day interest rate of 6.17%. Industrial Bank of Japan was the lowest bidder among nine financial institutions that extended proposals to the city. The agreement can be terminated at any time by the city, officials said.
“As a short-term financing vehicle, this could work very well for the city,†Zacherl said. “We would only pay this interest for the amount of time that we are in this line of credit.â€
Last month, the city hired Public Financial Management Inc. to help deal with the county bankruptcy and its effect on Anaheim. One of the firm’s tasks was to seek lines of credit from 28 financial institutions throughout the country, including Industrial Bank of Japan’s Los Angeles office.
“Several financial institutions bid on this line of credit, so apparently we are not alone in feeling that we are on pretty good financial ground,†Zacherl said.
Bank Senior Vice President H.W. Jack noted the city’s “credit strength and market reputation†in a March 14 letter in which the bank offered the line of credit to the city.
Throughout the financial crisis, Anaheim has managed to maintain a good credit rating.
To carry out the agreement with Industrial Bank of Japan, the council is expected to hire the San Francisco-based law firm of Jones, Hall, Hill and White. The legal fees are not to exceed $7,500, according to city documents.
If final negotiations break down, the city will begin negotiating with the second lowest bidder, Morgan Guaranty Trust Co. of New York.
The city intends to repay the loan from several possible sources, including distributions from the county pool, sale of city securities and budget savings over the next several months, officials said.
Interest on borrowed money will be due on the first of each month and all outstanding principal and interest will be due within 12 months.
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