CHICAGO - One of the law firms bumped as underwriters' counsel for Cleveland's upcoming $630 million airport bond deal is considering legal action against the City Council.
"I think it's a political agenda, all right," said Ricardo Teamor of Teamor & Associates, referring to the council's adversarial relationship with Mayor Michael R. White. "It's their way of trying to browbeat the mayor."
The council voted to replace Teamor's firm, which was hired by White's administration, with Forbes, Fields & Associates. The Forbes firm is headed by George Forbes, the former City Council president and the mayor's long-time political enemy.
Aviation Committee chairman Michael Dolan said Teamor & Associates had too many conflicts of interest to act as underwriters' counsel -- such as representing a restaurant that will be relocated with bond funds. "That's a clear conflict in my mind," Dolan said. He added that Teamor's firm had no legal contract with the city, since his hiring had not been authorized through legislation.
"I defy him to come up with an opinion to say what conflict I have," Teamor retorted, calling Dolan "a liar." Teamor said that his firm had already done "quite a bit of work" on the airport issue.
Dolan said the council settled on Forbes' firm because it needed a minority firm to replace Teamor, and Forbes Fields has an excellent reputation. "The issue is competence, and if we didn't put a minority firm in, the minority members of council would be crying foul," Dolan said.
Dolan also noted that Forbes would be working for the underwriters, not the mayor.
The council also replaced underwriters' counsel Nixon Peabody with Vorys, Sater, Seymour and Pease. Dolan noted that Vorys Sater has a Cleveland presence, while Nixon Peabody does not. A spokesman for Nixon Peabody said the firm had no comment.
Mayor White had no comment on Forbes' appointment or on other amendments to the airport bill, which the council passed Monday. White's spokesman, Brian Rothenberg, said the mayor also would not comment on whether he would sign the legislation.
The council has criticized White's administration for taking too long to provide information about how the bonds would be issued.
If the mayor signs, the city can proceed with bond issuance after a 40-day referendum period, Dolan said. If the mayor refuses to sign, the legislation must wait another 40 days before going into the referendum period.
A delay could interfere with the city's plans to start construction on a new runway late this summer.
In another wrinkle in the case, the Ohio Environmental Protection Agency has rejected the city's application for a storm water discharge permit, a delay which could push the start of construction until next year.
Besides swapping out the underwriters' counsel, the City Council also dictated how bankers on the issue will divide up commissions.
The council apportioned 50% of the commission to book-runner Goldman Sachs & Co., and 10% each to A.G. Edwards & Sons Inc. and NatCity Investments. The city split the remaining 30% between SBK-Brooks Investment Corp., Merrill Lynch & Co., Lehman Brothers, PaineWebber Inc., and M.R. Beal & Co.
Airport officials say this group-net stipulation could force the city to offer bonds at higher interest rates, since bankers might not market bonds as aggressively, according to Kate Hubben, a spokeswoman for the city's Department of Port Control, which runs the airport.
City Council Finance Committee chairman Bill Patmon disputed this, saying the strategy will not affect bond prices. Patmon said the council wanted to support the city's goal of giving minority and Cleveland firms an adequate share of city business.
Joel Motley, managing director of Carmona Motley Hoffmann Inc., financial adviser on the airport issue, had no comment on the council's amendments other than to say that the group-net strategy is not uncommon.
Bill Morris of the Chicago investment banking firm Bigelow & Co. said group-net provisions used to make sure the lead bankers on a negotiated deal don't "stiff" the co-managers on commissions.
"The dynamics of this are extremely difficult -- you want the co-managers hustling because the harder they work, the lower the interest rate," Morris said. But he noted that in some cases, co-managers who have worked hard to bring in business may lose their commissions to the senior bankers. The trick is to make sure the co-managers on a group-net deal hustle even though their commissions are guaranteed, Morris said.
