The Crested Butte News Serving the Gunnison Valley since 1999
Could put money in-hand by the end of the year
Members of the RE1J school board recently received a presentation on what the future of the municipal bond sale will look like for the district’s six capital improvement projects.
At a work session on Monday, November 17, Todd Snidow, a senior vice president at George K Baum and Company, which is handling the sale, said, “You hired me to do two things. The first was to pass a bond and the second was to lock in the lowest interest rate possible for you. The first piece is done and we’re moving on to the second one.”
With $55 million in bonds being projected to cost taxpayers around $110 million over 25 years, a small change in the interest rate that the district pays could change the amount being repaid significantly.
If the repayment schedule lasts the full 25 years, the difference of a quarter percent—between 5.17 percent and 5.42 percent—can cost, or save, the district around $1.7 million.
To push the interest rate in the taxpayer’s favor, Snidow told the board that he would do everything in his power to improve the district’s credit rating, which will most likely be ‘double A’ with the insurance of the state’s intercept program, which will step in to make a bond payment if the district is unable.
“My mission over the next month and a half is to go out there and get you the highest credit rating possible on your bond sale and to get you the lowest corresponding interest rate. The higher the credit rating, the lower the perceived risk and the lower the interest rate that you’re able to obtain,” he said.
One way Snidow hopes to do that is through the backing of a bond insurer, but there is only one notable firm left standing, now that the dust of the subprime mortgage mess has settled. And although the insurance is there, the district will have to pay the price being asked.
Snidow recommends the district look at bond insurance so they can weigh the costs with the benefits. If the insurance premium, which is estimated at $220,000, costs more than the amount being saved with the lower interest rate, it wouldn’t make any financial sense to buy the policy.
But there are benefits outside of initial cost that could play into the board’s decision to buy insurance or not. With insurance, the district’s rating could go as high as a “triple A,” making the bond more attractive to some investors.
“I’m being told that we’re going to be very well served to point out that you’ve just had a tremendous success… So I think we’ve got a good shot at getting an upgrade to your underlying credit rating and that should be mid-rung in the single A category. That’s going to provide more benefit to you than if we added insurance,” he said.
But Snidow said he would pursue the bond insurance so the school district could make a “game-time decision” on the matter, to purchase the insurance or not.
He asked the district’s business manager, Stephanie Juneau, for a completed questionnaire that probed into the academic degrees held by the district staff, as well as their tenure. That information will be presented to the potential insurer and, it is hoped, lower the district’s insurance premium.
Once the district gets into the best position for the bond sale, the question becomes whether to have a single offering or multiple sales.
“What we’ve learned is that if you sold all of your bonds at one time you would exclude a whole class of investors that would want to participate in this sale, like medium banks and small banks,” said Snidow.
Those banks could invest in the school’s bonds only if they are “bank qualified” bonds of less than $10 million, which would require the school to break the sale into smaller pieces.
Snidow said splitting the sale of the bonds into two parts could give local banks an opportunity to invest in the bond, adding that selling a bank-qualified bond can also mean a lower interest rate being paid by the taxpayers, said Snidow.
Cutting local banks from the pool of possible investors wasn’t something the board members were willing to do.
“I think the first thing is that we communicate up-front and throughout the process with all of our local financial institutions so they have an opportunity to present whatever investment options that they can give to us… so we can spread it out to as many of those institutions as possible,” said board president MJ Vosburg.
Although the idea of splitting the sale further into three parts was presented, Snidow pointed out the risks of prolonging the sale but said he would explore whatever option the board wanted.
Board treasurer Bill Powell echoed the caution toward holding the last of the bonds until 2010, when a third piece would become available as bank-qualified.
“In terms of how we’ve presented ourselves to the public… I personally think we need to take the most conservative financial path that we can. I think that we should look at alternatives, but we should really get the money, have it in-hand and do the best we can with it,” he said.
But with construction plans lasting into 2010, having bonds available for sale could make it easier to feed the construction projects without requiring a reinvestment of bond funds during the interim.
Blythe and Company, which is managing the district’s projects, has started working on timelines to coordinate the bond sale with the construction schedule. Already the firm has sent bids out for surveying and soil sampling services to be performed.
According to superintendent Jon Nelson, “Roy [Blythe, the company’s owner and principal] will have a crew in the district to do measurements on Thursday [November 20]. Then he’ll have a meeting at the Crested Butte Community School on November 21,” and he’ll be meeting with district staff several times for input on the specifics of the plans.
If the first piece of the bond sells on December 16 or 17 as planned, Snidow said, Blythe could have money in-hand to start the projects by the first of the year, with the second wave of bond money coming around January 26.
“Depending on when the bids come back and how fast winter comes, Blythe is anticipating getting [the surveying and soil sampling] done by mid- to late-February,” said Nelson.
