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Underwriters giddy over bond issuances

Underwriters giddy over bond issuances

Successful comedians and successful bond underwriter have one thing in common: perfect timing. But they are polar opposites on everything else.

Bond underwriters are serious folks who read federal data sheets, predict future trends, and seldom show much emotion during discussion of bond activity. This all seems to be changing.

Columbia Public Schools’ recent bond activity is so good that our bond counsel and underwriters are almost giddy. They smile, laugh and even make a humorous comment or two. What amazing event could trigger such unpredictable behavior? It’s a bond market selling at historic lows, refinancing at unheard of rates and long-term district savings in the millions.

Let me explain. The citizens of Columbia approved the issuance of $120 million in bonds in 2010. As you know, this bond issue is providing the final funding to build Battle High School, gymnasiums, an elementary school, heating and air conditioning improvements and other upgrades. The $120 million is being issued in three large market sales.

The first issue was for $43 million in June 2011. We were pleasantly surprised with the rate of 3.89 percent, but we also received a premium of $2.9 million. This was better than the expected 4.5 percent rate. The rate and premium was enough to eliminate the possibility of needing to use capitalized interest over the next three years. So far, so good.

Knocking socks off

The second issue occurred just last month. We were optimistic, considering the last market response, but this one really knocked our socks off. First, we took advantage of the low interest rate market and refinanced $27 million of series 2004 and 2005 bonds for the remaining eight years of payment. The bonds were sold to investors at 1.8 percent – yes, that is correct. The refinancing will result in $1.6 million savings in our debt service fund over the next eight years.

The second round of 2010 bonds was put on the market recently. We sold $33 million of bonds at 3.6 percent and received a $2.7 million premium. Local financial institutions purchased a considerable amount of this issue.

The final $44 million of the 2010 bonds will not be able to hit the market until early 2014. The $50 million bond issue approved this April will be sold in November 2014.

Although we can never be certain, it looks to be a stable time period and historic low rates may continue a bit longer. Because of these low rates, we anticipate being able to put $7 million to $10 million more into projects than projected prior to voters’ approval of the 2010 bond issue.

This means more brick and mortar projects such as repairing roofs and parking lots and some additional space improvements. With almost $400 million in properties to maintain there is never a lack for necessary maintenance. In addition, the bids on projects have been very competitive. The 2010 bond issue may prove to be the best time ever to build new facilities.

Highly valued bonds

CPS bonds are highly valued. The school district currently has an Aa1 rating from Moody’s – the second highest rating. We recently asked Moody’s to consider raising our rating to Aaa. This would have made us the first school district in the state to have an Aaa rating from Moody’s.

Moody’s gave our request good consideration but kept us at the current rating. It suggested that the following might help raise our rating:

• Pass the 40-cent tax levy and $50 million bond issue requests

• Restore staffing levels

• Open Battle High School and complete the secondary reorganization within the projections of the 5-year financial plan

Columbia Public Schools is appreciative of the public support received in the recent election and the many prior elections. Another review will be conducted after we open Battle High School, and this will give us another shot at the illustrious Aaa rating.

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