Call it the kiwi connection.
Los Angeles County has found a unique way to cut costs for its borrowing needs: It is offering $100 million worth of securities denominated in New Zealand currency. "It's real man-bites-dog stuff," said Roger Leaf, a vice president at First Boston Corp., which is underwriting the offering. "This is the first tax-exempt issue ever denominated in a foreign currency."
Under the deal, the county is borrowing $100 million (U.S.) worth of "kiwi" dollars--nicknamed for the egg-sized fruit grown in New Zealand and other regions--at 3.7% interest. The 12-month notes, in $5,800 denominations, will pay holders 12% interest.
Los Angeles is getting the money at such a low rate by "locking in" a favorable future exchange rate at which it will obtain New Zealand dollars to pay off the debt. The county also is borrowing $685 million in U.S. currency, at slightly higher interest rates.
Although the U.S.-denominated offering is more expensive, Los Angeles couldn't have made a much larger move into New Zealand currency without risking havoc in the kiwi dollar market. "If they wanted to do the entire deal in kiwi dollars, that would have been six times the size of the biggest New Zealand dollar transaction in history," Leaf pointed out.
For all its novelty, the deal shows how such a major public entity as Los Angeles County is a player in the world of high finance.
Every year, it offers notes--totaling as much as $950 million--to provide cash needed for such big-ticket costs as the county payroll, retirement fund contributions and other obligations. The notes are secured by expected property taxes and other revenues.
The favorable New Zealand terms will save taxpayers between $200,000 and $300,000, said Sandra R. Tracey, Los Angeles County's treasurer and tax collector. What's more, the county will profit by investing the $785 million at prevailing interest rates, which are well in excess of the money's cost.
The Los Angeles move follows some 70 offerings of foreign-denominated securities by U.S. corporations in recent years.