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Sunday, February 12, 2012

Records illustrate the cost of Nashua buying Pennichuck

NASHUA – The city’s recent purchase of Pennichuck Corp. carried a price tag of more than $200 million.

A large chunk of that money – $137.8 million – bought all 4.7 million shares of the privately held corporation.

Another $5.17 million was earmarked for what you could call the cost of doing business: legal, accounting, banking and bonding fees. These fees amount to what, on a smaller scale, you see in the fine print of a contract when getting a new car.

But buying a company requires research of law and regulations, fiscal acumen and the services of bond underwriters.

“These things aren’t cheap,” said Alderman-at-Large Brian McCarthy, who has worked closely on the Pennichuck acquisition for a decade, starting when the city made a failed bid to buy the company and then entered several years of legal entanglements before acquiring Pennichuck last month.

According to documents obtained last week by The Telegraph, the city spent $4.16 million on legal and banking services and $1.01 million on bond counsel and underwriting services to take ownership of Pennichuck, reaching that $5.17 million total.

John Patenaude, who is the interim CEO of Pennichuck for the infancy of city ownership, previously had served as a contracted consultant who advised city officials through their efforts to negotiate the stock purchase of the company.

For that consultant work, between June 2010 and January, Patenaude received $148,883 in what the city has labeled as “executive fees.”

Patenaude became CEO on Jan. 25 when the city officially purchased Pennichuck; he will serve no longer than three years and receive an annual salary of $190,000.

The top fee went to Boenning & Scattergood, a securities, asset management and investment banking firm. The city paid the Pennsylvania company $1.04 million to serve, in January, as the investment banker for the Pennichuck transaction.

The New Hampshire law firm Rath, Young & Pignatelli received $916,309 for legal services from Sept. 2008 to January. C.W. Downer & Co. was paid $643,059 for financial advisement from December 2008 to January.

J.P. Morgan received the lion’s share of fees for handling the city’s bond sale.

The firm was paid $558,921 to underwrite the $152 million in general obligation bonds that the city floated to acquire the $137 million of Pennichuck stock, pay the $5.17 million in legal and bond fees, give $2.2 million in severance packages to outgoing Pennichuck executives and use $5 million for a water rate stabilization fund.

The city also acquired $60 million in Pennichuck debt, pushing the price tag over $200 million. Aldermen approved borrowing up to $220 million to pay for the entire transaction; they and Mayor Donnalee Lozeau haven’t decided yet whether to borrow more money to pay off the $60 million debt.

J.P. Morgan sold the city’s general obligation bonds at a 4.09 percent interest rate.

The firm declined to release the names of customers who bought the city’s bonds and the indvidualized sale amounts. This information is subject to confidentiality agreements, a J.P. Morgan employee wrote to City Treasurer David Fredette, who forwarded The Telegraph’s request for this data.

But J.P. Morgan broke down the bond purchase by category.

Insurance companies bought the majority of the city bonds, 60.7 million, or 40.3 percent, according to J.P. Morgan.

It didn’t surprise McCarthy that insurance companies would be the largest customer.

“They’re looking for solid, low-risk investments, and that’s what we tend to be,” he said.

More than 21 percent of the bonds were purchased by arbitrage accounts; 19.64 percent by investment advisers; and bond funds, municipalities, credit unions and other entities divided the difference.

Albert McKeon can be reached at 594-6528 or amckeon@nashuatelegraph.com. Also, follow McKeon on Twitter (@Telegraph_AMcK).