School District gets great rate on first bond offering

Second, larger sale to come in January or February

The RE1J school district had the first of two bond sales on Tuesday, December 16, getting a better interest rate than had previously been expected on the $10 million bank-qualified bond.

 

 

According to Todd Snidow, a vice president with George K Baum and Company, the bond’s underwriter, “The sale went well,” and the full amount will be delivered to the district on December 29.
“I’m pretty sure they’ll start spending that money as soon as they get it and we think it should last them until March. That will give us a time cushion to sell the other [$45 million] piece either in January or February,” Snidow says.
Some of the funds will immediately go toward surveying the sites and soils’ testing that has already been done in preparation for foundation construction.
The district will also have bills coming in from general contractors who were chosen after interviews Tuesday, as well as the obligations of the contract with the Blythe Group, which is overseeing the projects. The contract was approved by the school board on Monday, December 15.
Snidow said there was a lot of interest in the bond. It sold in three parts, with $2.5 million maturing in 2027, $3.9 million maturing in 2028 and the final $3.6 million maturing in 2029.
The interest rates the district was able to secure on the bond were better than had been expected after the district ran into financial trouble several years ago. But Snidow said the presentation made by superintendent Jon Nelson and school board president MJ Vosburg to the rating agencies in late November improved the district’s position.
Moody’s Investor Services gave the school district an A1 rating and Standard and Poor’s gave a rating of A+. The ratings are based on the district’s ability to repay the bonds and are considered to be in the “upper middle grade.”
“The fact is, I thought the district would get upgraded to A2 and an A. The presentation was so strong that the rating agencies went beyond where I thought they would go,” said Snidow. “They went up a full three notches since 1995, which is pretty good reflection of the confidence they have in the district. The district got a really strong upgrade.”
The ratings the school district got are the same as those assigned to the Aurora school district’s $132 million bond sale, which, in the eyes of investor, has several advantages over the RE1J school district, like a larger tax base.
But the Aurora school district had to pay an interest rate of 6.05 percent for investors to buy into its bond. Gunnison RE1J, by contrast, is paying only 5.125, 5.05 and 5.0 percent.
“Locking in this bank-qualified piece at those rates was one way for us to keep the total bond inside the parameters of the bond questions,” which set the maximum interest rate allowable at 6 percent, says Snidow.
Another reason for the low interest rates, besides a favorable rating, was the decision to add insurance to the bond, which makes the investment more attractive for banks that are traditionally more conservative investors.
Snidow said the district is still considering all of its reinvestment options for holding the bond money once it arrives, which could be limited by the severe cut made to the federal interest rate last week.
“[The District] is going to be hard pressed to earn a percent on reinvestment so we’ll have to explore all of our options,” he said.
According to superintendent Jon Nelson, the district is concerned more with keeping the money from the first bond sale safe than with maximizing the return on the district’s reinvestment.
“This initial [$10 million part] will be invested in COLOTRUST, a statewide governmental investment trust that is very, very safe. What we’ll do between now and the sale of the second piece of the bond is send [a request for quotes] to local banks to see if they want to participate in the investment of either bond,” he says.
Anyone with the means will be able to invest in the second sale of the $45 million bond in late January or early February, which will likely yield a higher return, says Snidow. For more information about that sale contact Sherry Hansen, a vice president at George K Baum, for a prospectus at 1-800-722-1670.
 

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