FREEHOLD — The Monmouth County Improvement Authority’s flexibility to conduct a negotiated sale of $32,180,000 in revenue bonds through its annual Pooled BANs Program generated additional savings for nine Monmouth County municipalities seeking to permanently fund bond anticipation notes (BANs) or fund new projects.
According to a press release, this was the 10th time in as many years the MCIA has offered the Pooled BANs Program and it illustrates the advantages towns realize as a result of the MCIA’s unique flexibility to conduct a negotiated bond sale, which the towns could not have achieved had they entered the market on their own.
The MCIA’s negotiated-sale process enabled the authority’s financing professionals to take advantage of improving prices and sell the bonds at the peak of the market in mid-November, the MCIA announced in reporting the results of the sale, which formally closed Dec. 4.
The MCIA’s financial professionals continually adjusted the bond coupons and yields on the day of pricing to save an additional $42,934 in debt service on six of the maturities.
Investors paid total net premiums of $1,543,070 for the AAA-rated MCIA bonds. That money was used to lower the amounts of the bonds and pay financing costs.
In addition, the MCIA obtained bond insurance that created another $260,066 in savings.
Marlboro was one of seven towns that used the Pooled BANs Program to finance approved but unfunded ordinances.
"The bond market was heavy with supply and considerable volatility when we priced the bonds," said MCIA Chairman John Kay. "However, the market was improving from a disastrous October that saw tax-exempt yields rise significantly. That improvement was driven by negative economic news and by the Federal Reserve’s 50-basis-point (.50 percent) reduction in the federal funds rate."
The Fed has lowered short-term rates 12 times in the past two years and it had hit 1.25 percent, a level last seen in 1958, when the MCIA priced the Pooled BANs Program bonds on Nov. 12, according to Lawrence Bashe, senior underwriter for the MCIA.
The bonds achieved an attractive true interest cost of 4.2476 percent, with each participant’s true interest costs varied based on its amortization schedule.
The savings generated by bond insurance also varied based on the amount borrowed and the maturity schedule of the bonds.
More than half of Monmouth County’s 53 municipalities have participated in the MCIA’s Pooled BANs Programs since the authority began offering them in 1993. MCIA Pooled BANs Programs have financed a total of $257,860,000 for municipalities to convert BANs to permanent debt and fund approved ordinances, according to the press release.
The 2002 MCIA Pooled BANs Program illustrates several of the unique capabilities of improvement authorities.
"The 2002 Pooled BANs Program bonds were rated AAA by Standard and Poor’s and Aaa by Moody’s through the attainment of bond insurance," Kay said. "That helped the authority achieve an attractive true interest cost for the towns that was 35 basis points (.35 percent) lower than our program last year. The MCIA’s ability to conduct a negotiated sale enabled our finance team to make adjustments that took advantage of changing market conditions. The towns would not have had that flexibility during pricing had they entered the market individually and on their own."
Municipalities issue BANs as short-term debt until market conditions are favorable or they accumulate enough BANs to combine into a single bond issue big enough to convert efficiently from temporary to long-term debt.
The MCIA program was created to help them maximize that conversion process by pooling their needs into a single MCIA bond sale.
By serving as a pooling agent for the municipalities, the MCIA is able to lower the financings costs to each through economies of scale, according to the press release.