Port pays twice going rate for bond work
11/16/1989 3:01 AM
09/08/2014 5:33 PM
Port Everglades hired politically connected firms to sell its bonds, then paid the companies roughly twice the going rate for similar work in South Florida.
In the last three years, the fast-growing port has issued $270 million worth of bonds, mostly to pay for its expansion. Of that, nearly $5 million went to bond firms, lawyers and salesmen -- some who have close personal and political ties to port commissioners.
Most of the port's bond work went to the underwriting firms of Drexel, Burnham and Lambert and Bear Stearns. Both firms have employed William Glynn, a frequent campaign contributor who once co-owned a North Carolina cabin with Port Director Joel Alesi.
Last year, Glynn treated several port commissioners to a Broadway show in New York.
Those companies charge much more than bond companies doing work for other South Florida governments. And they also earn higher fees than bond firms hired at other U.S. ports.
* Drexel, which managed a 1986 issue of $107 million, earned more than $430,00 in fees. It charged a management fee of $4.14 for every $1,000 of bonds sold.
During that time, Broward County issued two bond deals. Each time, the management fee was only $1.75. On two 1986 issues in Palm Beach, the county paid management fees of only $2.50.
* Bear Stearns, which managed a $117 million bond deal earlier this year, charged a management fee of $2.75, earning more than $323,000. Broward County went out on three bond deals this year, paying management fees of 75 cents, $1.25 and $4.15. Dade County did two bond deals, paying management fees of 95 cents and $1.
Just a year earlier, the Port of Miami paid management fees of 25 cents on each of two bond deals. The same year, the Jacksonville port paid management fees of $1 and $2 on two bond deals.
Bear Stearns handled another bond deal this year, for $50 million. The management fee for that was $1.25, more in line with fees paid by other governments.
In both deals, Bear Stearns earned tens of thousands of dollars in commissions by selling many of the bonds itself. Senior Managing Director William Hayden refused to say how much his company earned in commissions but said the fees were fair.
"That first one took a lot of work and was a very extensive deal to put together," he said. "It was well over a year, and the fee was competitive with the market."
Port administrators say the rates on the first two bond deals were higher than usual for a variety of reasons -- none having to do with friendships and political connections.
They say the port's fees are naturally going to be higher because it had no experience in the bond market until 1986 and was trying to gain a good reputation with investors. Further, on the second issue, the bond deal was somewhat risky and took more time to sell.
"We asked our financial adviser to make sure what the port was paying was fair and equitable. They have assured us that it was," Commissioner Jim Kane said. "I believe the fees were more than reasonable."
The two firms that advised the port on this year's bond deals have political connections to port commissioners, too. The lead financial adviser is John Miller, who individually and through partners contributed $5,000 to Commissioner Betsy Krant's 1990 re-election campaign. The port's legal adviser is the law firm led by House Speaker Tom Gustafson. The firm has contributed thousands to port campaigns.
Miller, hired by the port to work on all three bond deals, said the fees were "market rate for what they sold. There's no question about it."
The Port Commission picked Drexel and Bear Stearns as bond managers without any competitive bidding. Many governments do not seek bids on bond work because they feel they can get a better rate negotiating one-on-one. But it also leaves the selection prone to politics.
"I think it's outrageous," said former port Director James Connolly, who ran the public agency from 1981 to 1986 and who vetoed the idea of issuing bonds then. Port executives, he said, act as though they're "in charge of the candy store. Let's get candy."
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