[lbo-talk] Is Goldman Sachs Buying LA?

Jordan Hayes jmhayes at j-o-r-d-a-n.com
Fri Jun 17 11:41:16 PDT 2011

Ferenc asks:

> If investor revenue streams for municipal bonds that funded
> utilities came from city and state taxes then what happens
> when the bank owns the utilities directly?

I'm not sure there's much out there in terms of bonds whose proceeds are used to *operate* a utility. Borrowing money for operations seems a bit unsustainable :-)

Except for things like "revenue anticipation bonds" (which are really just used for cash-flow), bonds are typically floated for the purchase of a capital asset: a school, a library, etc. Taxes then pay the interest and principal over time until the bonds are retired. When that happens, the ownership of the asset is by the people.

> Does the revenue stream continue to come from taxes or does
> the bank pay them?

The usual structure for privatization is:

- The asset is sold to the investors - The use of the asset is then paid for like any other tenant

I know there are a lot of places that are considering selling off buildings like City Hall. But the local government still needs office space, so they'd have to rent from the new owner.

> Also, does the municipal government now release its control over
> who it chooses to award contracts to run its former public utilities
> and does the bank now go into the business of contracting and managing
> former city and state utilities?

If you privatise a utility, yes: the new owner gets to decide those things.


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