A credit pool created by the Maryland Economic Development Corp. and NationsBank will make $75 million in proceeds from the sale of variable-rate bonds available to smaller county and municipal governments for construction and other projects.
Medco expects to lend the first $20 million or more in the next 90 days to finance "seven or eight projects such as water and sewer lines and other local development activities," said Hans F. Mayer, the quasi-public state agency's executive director.
The pool is designed to meet the needs of smaller municipalities and local government agencies such as water and sewer authorities, which sometimes have trouble getting credit because of their size, Mr. Mayer said.
Key to the plan is a $75 million letter of credit that NationsBank provided to Medco. The agency used the letter of credit to sell variable-rate, short-term industrial development bonds to institutional investors such as tax-free money market mutual funds and pension funds.
The idea for the pool came from NationsBank, which will be paid a fee for the letter of credit, Mr. Mayer said.
"NationsBank had backed a similar pool in Tennessee, and when that proved successful, they also approached some other states," he said.
After the bank approached Maryland, Medco surveyed local governments and revenue authorities in January and February and found that "quite a few" would be interested in using such a pool to finance projects, he said.
With the letter of credit, these agencies will get the benefit of NationsBank's A+ credit rating, which provides easy credit access, and at the same time will be able to borrow at a variable interest rate, which is lower than a fixed rate, Mr. Mayer said.