City to save more money in bond refinancing
By Steve Dreyer
The city will be saving even more money than originally estimated by refinancing the 2003 bonds used to finance construction of City Hall.
Members of the City Council were told Friday morning that Wednesday’s successful refinancing of $14.8 million of “certificates of participation” will save the city about $4.2 million over the remaining 20 years of the financing. Pre-sale estimates pegged the savings figure at $4 million.
Financial adviser Tim Schaefer told the council the city’s offer attracted five bidders and that the low bid, by Citigroup Global Markets, had a “true interest cost (roughly the same as an annual interest rate) of 2.995 percent. The second-lowest bidder, MorganStanley, came in at 3.036 percent.
The two lowest bids also differ in the projected profit the successful bidder would make by reselling the bonds. Citigroup listed a 1.66 percent rate, while MorganStanley had a 1 percent profit. Because the Citigroup rate exceeded the 1 percent mark set in the city’s proposal, City Council action to accept the higher rate was required. That necessitated Friday morning’s brief special meeting, where approval was given. The vote was 5-0, with Councilman Jim Cunningham participating via telephone.
The higher profit rate will have no effect on city costs associated with the new bonds, Scheafer said.
The original transaction in 2003 issued $17.6 million of debt securities, called “certificates of participation,” to fund a substantial portion of the city’s office building complex. Current low interest rates, combined with the city’s AA+ credit rating issued by Standard & Poor’s, resulted in a large savings.
No additional borrowing was included in this refinancing, and the term of the bonds was not extended. The COPs were also structured with a standard 10-year “call protection period” to allow a future refinancing in 2023, assuming market conditions are favorable.
Citigroup was reportedly reoffering the bonds to investors at yields ranging from 0.25 percent in 2013 to 3.375 percent in 2033.
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