MTA Sells $125 Million in Bonds on Internet

Using the Internet for the first time to receive bids, the Metropolitan Transportation Authority sold nearly $125 million in new bonds Wednesday to finance the Metro Rail subway and other transit projects.

Top MTA officials were delighted with the competing bids submitted by six banks and brokerage houses and believe that the competitive approach may have saved the agency money on its borrowing costs.

Representatives of the state treasurer’s office were on hand when five bids were received electronically at the MTA’s headquarters in downtown Los Angeles. The sixth was delivered the old-fashioned way, by hand.

Terry Matsumoto, MTA’s executive officer for finance, said it was only the second time in California that electronic bids had been received by a government agency selling bonds.

MTA chief executive Julian Burke said the agency’s recent meetings with Wall Street rating agencies and brokerage houses helped build confidence with bond buyers. “We were very well received,” he said.

Matsumoto said agency officials were very pleased with the results. “This is better than we thought it would be based on our trip to New York.”

The winning bid by Solomon Smith Barney was at an interest rate of just over 4.85%.

By transmitting the bids electronically, Matsumoto said, the bidders were able to provide the MTA with the latest market yields on the bonds, which will mature at various times over the next 30 years.

The MTA borrowing was the latest in a long series of debt offerings that have financed construction of America’s most expensive subway system, light-rail lines, the MTA’s high-rise headquarters and project cost overruns.

When interest and fees are included, it will cost Los Angeles County taxpayers nearly $7 billion to repay the MTA’s debt over 30 years.

Most of the outstanding debt are bonds that will be repaid from a share of the county’s 1% transit sales tax. The bonds have been coveted by higher income Californians because the interest earned on them is exempt from state and federal income taxes. The bondholders also are protected because they must be paid first before the MTA operates any buses or trains.

On the trip to New York, MTA chief operating officer Allan Lipsky assured Wall Street that the anti-subway ballot measure overwhelmingly approved by Los Angeles County voters in November does not threaten existing bonds or the new debt.

The initiative outlaws the use of the sales tax to plan, design, build or operate new subways once the Red Line reaches the San Fernando Valley in the summer of 2000.

Lipsky used a montage of movie posters to preview the subway’s arrival in Hollywood and underscore his message that the MTA is on a sounder financial footing.