The Gazette covers City Hall, now a flood-damaged icon on May's Island in the Cedar River

News on troubled $6 million investment may come in early May; another $2 million problem murkier

In Cedar Rapids/Linn County Solid Waste Agency, City Hall on March 28, 2008 at 2:41 pm

The finance committee of the Cedar Rapids/Linn County Solid Waste Agency Board of Directors huddled in closed session again this week as it did last week to discuss the agency’s $6 million investment in Rhinebridge LLC, a short-term investment type called “commercial paper.”

The committee took no action.

Rhinebridge LLC, a European investment product created just last summer, signaled it was having difficulty in September before it went into default in October. It had too few assets, many backed by problem mortgages,  to pay off those who had invested in it.

The city of Cedar Rapids, which handles investments of solid waste agency funds, invested $5.921 million of agency funds in Rhinebridge LLC in July through a Wells Fargo brokerage. The expectation was that the fund would pay out $6 million to the agency 90 days later, on Oct. 24. But the fund couldn’t.

The investment’s rate of return of 5.4 percent was slightly better than the 5 to 5.3 percent that could have been earned with certificates of deposit, Sue Vavroch, the city’s treasury operations manager, has reported earlier.

The solid waste agency’s finance committee has met twice now in two weeks and has gone into closed session because the subject matter included possible litigation involving the investment, the committee said.

Subsequent to this week’s meeting, Vavroch said the current schedule calls for an auction of Rhinebridge assets in early May. She noted that Deloitte & Touche and Goldman Sachs were involved in the oversight of the assets and the auction.

As now planned, Vavroch said the solid waste agency’s finance committee and board will pick from two options prior to the auction of the Rhinebridge LLC assets. In one option, the agency would receive cash and would invest it in a Goldman Sachs fund. In a second option, the agency would accept a cash settlement and invest it as it chooses.

Vavroch said it’s too soon to know which option is better.

She got an update on the Rhinebridge LLC investment via an international conference call involving investors from around the world, she said.

Vavroch has noted that the solid waste agency’s investment is included among a “secured credit group,” which she has said is “most senior” status among the fund’s investors.

She noted, too, this week that more than $1 billion in investments are involved in that secured credit group.

In a second matter, Vavroch said the city has far less information about a second investment in commercial paper, a $2 million investment of city funds in something called Golden Key Ltd. That investment defaulted without paying what it owed the city in December.

Vavroch has noted that state law allows cities to invest in commercial paper, a form of short-term debt, and that other cities in Iowa have done so. Des Moines’ finance director has noted recently that the city of Des Moines has about 4 percent of its $186-million investment portfolio tied up in commercial paper. He has said, too, that he’s not apt to invest more in those investment products once the city’s current investment matures this spring.

Vavroch said this week that the city first began investing in commercial paper about 18 months ago.

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