Caprio Throws Curveball at Schilling Deal

Wednesday, September 01, 2010

Stephen Beale, GoLocalProv Politics Editor

 

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A local financial expert says that Frank Caprio’s unprecedented opposition could torpedo the $75 million deal between the state and Curt Schilling’s video game company.

Caprio, the Democratic candidate for governor, has contacted the two agencies that would rate the $75 million bond—Moody’s Investors Service and Standard and Poor’s—and asked them to delay their rating until after the election when a new governor is in the office.

“It will make it much more difficult to sell the bond and probably much more expensive,” said Fla Lewis, a Providence-based investment advisor and the principal of Weybosset Research and Management, LLC. “It could sort of screw up the financing of the deal and could torpedo it all-together.”

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He said there are two questions investors ask then they consider buying a bond—how much does it pay and what is the rating? Most wouldn’t give it a second look if there is no answer to the second question, according to Lewis.  

Lewis said he was not aware of any other case where a state treasurer contacted ratings agencies and asked them to hold off on rating a state bond. "It's kind of a clever thing he's done," Lewis said. "I've never heard of anybody doing that before, but it makes sense."

Spokeswomen for Moody’s and Standard and Poor’s told GoLocalProv they could not comment on requests for ratings until the ratings had actually been released.

The bond is being placed by Wells Fargo and guaranteed by the state. The loan guarantee is part of a new program the General Assembly created known as the Job Creation Guaranty Act.

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Caprio: State Should Not ‘Gamble Taxpayer Dollars’

Caprio, who serves as state treasurer, opposes the deal because taxpayers could be on the hook if Curt Schilling’s company, 38 Studios, fails to pay back the money. “I am not going to stand by and watch us gamble taxpayer dollars on a bad deal when there are thousands of small businesses in need of more access to capital,” he said.

Caprio outlined four major concerns he with the deal.

He said it lacked the guarantees the Rhode Island Economic Development Corporation normally expects from small businesses applying for loans, such as bond insurance. He noted that the state is currently failing to honor another guarantee the EDC made to the state retirement board. And he said the way the bond would be used was not made clear when the General Assembly passed the law creating the loan guarantee program.

Caprio said the lack of adequate guarantees or other security and little to no public knowledge of the details “reflects poorly on the state’s financial management practices” and “creates a risky moral obligation for the state.” He warned that the deal ultimately could affect the state’s credit rating and make future bonds more expensive.

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Change in Position

Caprio’s opposition was in marked contrast to his position about a month ago, when he said he not only supported the deal but also would actively work to make sure it was successful.

“I’m optimistic about it. The [EDC] board knew more than anybody,” Caprio told Rhode Island NPR. “They voted almost unanimously for it. So now in my role as a candidate and future governor, I’m going to be a cheerleader for it . . . Let’s do everything in a top-shelf fashion, and let’s put the wind at the back of 38 Studios, and let’s make sure it’s a success.”

Caprio spokesman Nick Hemond said Caprio initially backed the loan guarantee because he thought it was a done deal and therefore in the state’s best interest to make the best of it.

"Then as more details began to leak out about the structure of the deal which was more of a giveaway than a typical EDC project, Frank offered terms to make the deal better for the taxpayers,” Hemond said. 

Caprio sent a letter to the EDC in early August sharing his concerns, which Hemond said were not heeded.  “It is becoming clear that the deal is not going to be changed to protect the taxpayers so Frank has taken action to put the brakes on this deal by going directly to the market and the rating agencies,” Hemond said.

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Governor Accuses Caprio of Interfering

Gov. Don Carcieri  accused Caprio of “political posturing” and interfering with the deal. Carcieri said it was a “gross overstatement” to say that the loan guarantee reflects poorly on the state’s fiscal management or could have an adverse impact on its bond rating. (Click here for more on his remarks.)

Two of Caprio’s opponents for governor took sides on the issue. Independent Lincoln Chafee’s campaign praised the move—even if it came late.

“Senator Chafee welcomes the support of Treasurer Caprio and all Rhode Islanders who want to protect every penny of our tax dollars from bad deals that place the taxpayer in harm’s way. Senator Chafee wishes that Treasurer Caprio had come to this conclusion sooner...perhaps last week when the Senator stood alone in the vestibule of the RIEDC offices in an attempt to persuade Governor Carcieri to allow him speak to the RIEDC Board on this matter...but nonetheless he is grateful for Treasurer Caprio's change of heart.”

Republican John Robitaille, on the other hand, claimed that both Chafee and Caprio were being anti-business.

“It’s obvious that Linc Chafee and Frank Caprio are anti-business and do not understand economic development,” Robitaille said. “They are sending a ‘keep out’ message to any businesses that might consider moving to Rhode Island. With their opposition to the 38 Studio loan guaranty they are killing jobs and hurting Rhode Island families.”

 

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