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District of Columbia Gets Bids for Loan Guarantees

December 17, 1994

WASHINGTON (AP) _ The nation’s capital is moving closer to staying solvent, after two banks came forward with offers to guarantee notes the city plans to issue next year.

Outgoing Mayor Sharon Pratt Kelly called the response ″spectacular.″

″All applicants are solid financial institutions, with major practices in the municipal markets,″ she said on Friday.

But D.C. Treasurer Maria Day-Marshall said only one of the proposals to offer a ″letter of credit″ - a bank loan that guarantees bond payments are made on time - was enough to cover the proposed sale of $250 million in notes the city will conduct later. The amount the other bidder promised to underwrite won’t be revealed until next week.

The letter of credit was necessary because, with the city’s poor credit rating, securing a loan to underwrite its notes would be difficult, and the interest that the city would be charged would be high.

Few details of the proposals were revealed at a news conference Friday with Kelly, Mayor-elect Marion Barry, City Council Chairman Dave Clarke and city financial officials, but all expressed relief that one hurdle had been cleared.

Kelly would not identify the investment banks that sought to do business with the city but said one proposal for the letter of credit was made by an international bank and the other came from a syndicate of five domestic and international banks, all of which had strong credit ratings.

″Having the credit enhancements of these two major institutions means that we ought to be able to get good terms,″ she said.

City officials plan to offer investors $250 million in notes the week after Christmas. Investors who purchase the notes will have a slightly reduced risk because the letter of credit would act as insurance of timely payment and interest. Also the notes have a short maturity and are scheduled to be paid back in September 1995.

Without the $250 million note offering, the city could run out of cash by the end of January. The city’s total current debt is estimated at $531 million.

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