After some foot-stomping Wednesday, Kansas City's Finance Committee recommended a restructuring of almost $180 million in variable-rate bonds issued for the Power and Light District project.
The bonds will still pay a variable rate, but they'll be backed by a letter of credit from J.P. Morgan Chase.
Without that letter, city finance officials said, the bonds might have accelerated to a five-year payout, requiring the city to shell out $36 million a year beginning this April.
The new deal "steps us over the puddle," said Randy Landes of the city's Finance Department.
The agreement -- which could be approved by the full council as soon as Thursday -- comes at a cost.
J.P. Morgan will be paid at least $3.6 million for the letter, which will last for a year, as well as some other issuance costs. The city plans to take another look at the district's financing as the letter expires.
Councilman Russ Johnson pointed out that $3.6 million will have to come from taxpayers, since the District isn't generating enough money to cover the actual debt service on the bonds, let alone the restructuring charge.
The city now estimates the annual debt service on all P & L District bonds will average $20.2 million a year for 25 years, although they admit that's an educated guess because of the variable interest and the length of the financing.
Johnson voted against the deal, even though city officials told him it was the cheapest alternative. Refinancing at a fixed rate, they said, would actually cost more in debt service over the next 25 years, just like a fixed-rate home loan can cost more than a variable-rate mortgage.
Doing nothing would trigger the $36 million annual obligation, and potentially harm the city's overall credit rating, which now has a "negative" outlook from Moody's.
The bonds are considered "toxic" because two companies that originally backed the instruments have had their own credit downgraded in the worldwide financial collapse.