JACKSON city officials are planning to dole out the first of what will be many payments to firms involved in a proposed bond swap transaction that would refinance millions of dollars in city debt.

At a meeting late last month, the Jackson City Council approved a measure to pay financial advisors Sterne, Agee and Leach $55,000 for services related to the transaction that some say would save the city millions of dollars over the life of the bonds.

The move comes weeks after insurance providers for the city rejected Sterne Agee’s first proposal to swap $128 million in water and sewer bonds to obtain debt with lower interest rates. Finance Director Rick Hill said the city signed a contract with the firm last year and has to pay the amount regardless of whether or not a swap goes through.

“We engaged Sterne Agee to do several things. The first was to monitor our existing swap. For that, we pay them $10,000 a year,” he said. “The second was to prepare a swap policy. For that, they get a one-time fee of $15,000. And the third was to review any swap proposals the city receives. For that, they get $35,000.”

The firm is charging the city an additional $5,000 for monitoring its swap transaction for the first half of 2009. Jackson officials entered into a swap agreement in 2004 to refinance $50 million in water and sewer bonds. For that, Jackson brings in about $219,000 a year.

That swap which is considered a basis swap, exchanged the city’s bond with a fixed interest rate for a bond with a lower variable rate. Hill said the interest rate on that agreement would have to jump to 11 percent before the city would lose money on it.

Sterne Agee’s recent proposal to refinance approximately $128 million in bond indebtedness would have taken bonds with a fixed rate, swapped them for variable-rate interest, and immediately exchanged them for bonds with a lower fixed interest rate, he said.

The city council voted to approve the initial deal in May, but the proposal was axed when the city’s insurance provider, Financial Security Assurance, wouldn’t approve it because of its posed risks. Council members Jeff Weill and Margaret Barrett-Simon voted against the motion.

Now, officials are planning to present a much smaller proposal to the new administration to swap $40 million in water and sewer bonds.

Had the original transaction gone through, the city would have had to pay Sterne Agee about $476,000 for its services. With the amount scaled back, Stern Agee’s fee has also been reduced to $215,000. If Mayor Harvey Johnson decides to pursue the deal, the city would receive a credit for the check it’s already cut for the firm.

Jackson taxpayers currently pay 4.99 percent on water and sewer bonds issued in 2002 and 2004 respectively. The city owes additional funds on the swap transaction as well, even though the deal has yet to be signed off on by officials.

Of the additional payments the city will foot the bill for are $120,000 for the Baker Donelson law firm, and $60,000 for attorney Anthony Simon. An agenda item to pay the legal fees was pulled before it could be voted on. It was scheduled to be on the agenda for the meeting this week.

DOCUMENTS obtained by the Sun show that Baker Donelson hand-delivered a letter to acting Mayor Leslie McLemore on June 10 asking for payment. According to the letter, “since last fall numerous structures have been presented to the council by Sterne Agee for its consideration. Because of the changes in the financial markets directly related to the current recession, these structures, as we approached closing, proved difficult to finalize. Finally, on April 7, 2009, Sterne Agee presented two workable alternatives.”

One of the alternatives, the three-page letter stated, said one included swapping bonds from 2002 and 2004, and other involved only swapping the bonds issued in 2004. It states that the firms have “rendered all services necessary to close the proposed ... transactions.”