Miami-Dade County needs to set aside $10 million to cover lease of county hall
By Risa Polansky
Miami-Dade must set aside $10 million to cover its lease of 31-story County Hall, a building the government owns but "rents" from a Dutch mega-bank in a complicated, years-old "lease/leaseback" transaction.
To profit by $3.2 million, the county in late 1998 leased downtown's Stephen P. Clark Government Center at 111 NW First Ave., nerve center of the county's operations, to the financial institution, which then leased it back to the county.
Netherlands-based Rabobank, which says it is one of the world's largest 25 financial institutions, put about $99 million into the deal.
The county plans to "buy back" the building in about five years.
The arrangement means a $3.2 million profit for the county should the transaction go according to plan.
It still may, though now, more than 10 years later, there's a fly in the ointment: the insurer involved in the deal is teetering on the edge of insolvency.
Lease/leasebacks, or LILOs, were a popular way at the time for a government — transit systems in particular — to make money upfront from a firm that then benefited from the tax shelter, which the IRS years later did away with.
The "lease/leaseback" of the 1985-vintage building indeed did glean the $3.2 million those 10-plus years ago, said Frank Hinton, bond analyst in the county's Finance Department, in an interview.
To later buy back the asset — County Hall — from Rabobank, the county put money aside in a guaranteed investment contract through which Ambac Assurance Corp. assures interest earnings will equal the remaining value of the lease payments by 2015, the "early buyout date" named in the deal.
That account, valued at $35.5 million and growing annually at 6.04%, is to equal $52 million in 2015, the total payment due to Rabobank to reacquire County Hall and end the lease/leaseback transaction, Mr. Hinton said.
But Ambac in recent months has seen its credit ratings dip "to levels that place Ambac at significant risk of bankruptcy," county documents say.
As a result, the bank is asking now that the county either replace Ambac or set aside $10 million as collateral.
Terminating with Ambac would mean taking the $35.5 million and reinvesting it, Mr. Hinton said.
But in today's market, a new deal would probably glean only 1.5% to 2% interest, meaning the account value wouldn't hit $52 million by 2015 as needed — leaving the county to pay the difference, which could be from $17 million to $22 million, he said.
On the other hand, the $10 million would simply sit in a third-party account as collateral — and earn interest.
"At this point in time this is the best course for the county," Mr. Hinton said.
Commissioners at a meeting last week OK'd the move with no discussion.
At a committee meeting the week before, some were more vocal, approving the measure but first pressing to know where the money would come from.
The $10 million in collateral is to come out of the county's $1.27 billion-plus "treasurer's fund," an investment pool, Finance Director Carter Hammer told the committee and affirmed in an interview later.
"This is just one small amount, a tiny percentage which is $10 million of the $1.3 billion in investments in that particular fund," he said via phone. "And the county still gets that interest just as it would otherwise."
Essentially, it's moving the money from one bank to another, and either way it's earning interest, Mr. Hammer said.
Rabobank could access the money under any of three circumstances, Mr. Hinton said: if county didn't maintain at least $8 million in the account, if Ambac didn't collateralize the $35.5 million guaranteed investment contract, or if Ambac were to go bankrupt or receivership.
But if the insurer failed, the firm would be in default of the investment contract.
"If Ambac does go under, we will expect to receive 100% of the $35.5 million," Mr. Hinton said.
In that case, the county would put that money, along with the $10 million, in a depository and attempt to secure an interest rate that would grow the account to the needed $52 million.
If it couldn't, the county would have to put in the difference, which Mr. Hinton said he expects would be "minimal, something in the $1 million to $2 million range if it was done immediately," and potentially less over time.
But until that happens, if it at all, the $35.5 million account will continue to grow at the 6.04%, and the county can over time reduce the $10 million collateral amount, he said.
Commissioners at the committee raised concerns about how the county would pay should Rabobank draw on the collateral.
It's not appropriated in the budget now, budget chief Jennifer Glazer-Moon said, and "we do not anticipate this being called at this time."
But should it need to be, it would be up to the commission to approve it.
"If at some point this is called," she said, "we will have to come back to the board."
This is not the first time this year that Ambac's unstable state has caused trouble for the county.
The insurer is the guarantor on seven county interest-rate swaps.
Commissioners in September agreed to allow finance officials to terminate the swaps and seek new counterparties.