Bonding costs lower than expected
Clintonville to borrow $100,000 less
By Bert Lehman
Due to favorable interest rates and other final costs that came in lower than pre-sale estimates, the city of Clintonville was able to borrow $100,000 less than expected.
On Sept. 26, Ehler’s, the city of Clintonville’s financial advisor, took bids for the sale of $2.65 million in general obligation promissory notes for the city. The proceeds from the sale will fund the city’s 2016 and 2017 capital improvement projects, as well as refunding a 2007 promissory note issue.
Maureen Schiel, CIPMA financial specialist II for Ehlers, informed the Clintonville City Council at a special meeting later that same day that the lowest bid came from Bankers’ Bank of Madison. The low bid was for an interest rate of 1.4 percent.
Other financial institutions that submitted bids included: Baird in Milwaukee (1.60 percent), Piper Jaffray & Co. in Minneapolis, Minnesota (1.617 percent), Northland Securities, Inc. in Minneapolis, Minnesota (1.62 percent), Bok Financial Securities Inc. in Milwaukee (1.623 percent), Raymond James & Associates, Inc. in Memphis, Tennessee (1.702 percent) and Fidelity Capital Markets in Boston, Massachusetts (1.718 percent).
The interest difference between the low bid and the high bid was $39,838.
Schiel informed the council that the borrowing amount was reduced by $100,000 when final numbers came in lower than estimated, including an underwriter’s discount.
The council had previously approved borrowing up to $2.75 million.
With the reduction of the amount needed to be borrowed and interest rates being realized about a half a percent lower than estimated the previous month, Schiel said the total principal and interest cost over the 10 years of the bond term was reduced by about $66,000 from pre-sale estimates.
The council approved awarding the sale of $2.65 million in general obligation promissory notes to Bankers’ Bank.
As the Clintonville Tribune-Gazette recently reported, the credit rating issued by S&P Global Ratings for the city of Clintonville, was lowered from “A+” to “A.”
Details about the rate reduction were included with the information about the sale of $2.65 in general obligation promissory notes.
The report noted the city’s late principal and interest payment that was due March 1 for its series 2011A and series 2014A GO promissory notes.
It was acknowledged in the report that the city relied on payment reminders from Depository Trust Company (DTC) but a reminder was never received. The city did make the payment five days late after it was notified by DTC that the payment wasn’t made.
The report indicated that it viewed the late payment was due to an oversight by management rather than an unwillingness to meet its obligations.
Even though the city recently implemented new procedures to eliminate this oversight in the future, the report stated, “it is our opinion that reliance on notifications from the DTC in the past, and lack of internal systems which did not trigger upcoming payment dates warrant a lower rating.”
The report stated the “A” rating also reflected S&P’s view of the city’s:
• “Very week economy, with market value per capita of $46,984, and projected per capita effective buying income at 80.3 percent of the national level;
• “Adequate management, with standard financial policies and practices under our Financial Management Assessment methodology;
• “Strong budgetary performance, with balanced operating results in the general fund and an operating surplus at the total governmental fund level in fiscal 2015;
• “Very strong budgetary flexibility, with an available fund balance in fiscal 2015 of 42 percent of operating expenditures;
• “Very strong liquidity, with total government available cash at 142.5 percent of total government fund expenditures and 6.7x governmental debt service, and access to external liquidity that we consider strong;
• “Weak debt and contingent liability position, with debt service carrying charges at 21.2 percent of expenditures and net direct debt that is 123.2 percent of total governmental fund revenue, but rapid amortization, with 94.7 percent of debt scheduled to be retired in 10 years; and
• “Adequate institutional framework score.”
The report indicated the outlook for the city of Clintonville was “stable” due to the city’s very strong budgetary flexibility and liquidity.
The upside scenario for the city in the report included, “We could consider a higher rating if the city’s wealth and income metrics were to substantially improve, coupled with an improvement in the debt profile.”
The downside scenario was, “We could consider lowering the rating if the city’s reserves substantially deteriorated to levels we no longer consider at least strong.”