The Monmouth County Improvement Authority (MCIA)’s Dec. 12 sale of $42,215,000 in revenue bonds through its Pooled BANs Program generated interest savings and bond premiums in a deteriorating market, while enabling nine Monmouth County municipalities to convert bond anticipation notes (BANs) to permanent debt or fund approved ordinances.
According to a press release, all nine of the towns shared in the $650,868 in premiums that purchasers paid for the MCIA bonds on a prorated basis depending on the amount financed, each participant’s borrowing structure, and each town’s underlying credit rating.
In addition, the towns shared $181,799 in interest savings that resulted from the MCIA obtaining bond insurance from AMBAC (American Municipal Bond Assurance Corp.). The bond insurance generated the AAA credit ratings on the bonds even though the credit ratings of the towns varied.
"The deterioration of the market made bond insurance even more important," MCIA Chairman John Kay said.
Marlboro and Holmdel financed $7,842,000 and $6,704,000, respectively, to retire BANs and funded approved ordinances.
This was the largest MCIA Pooled BANs Program, also known as the MCIA’s Fixed-Rate Pooled Loan Program, in the nine years the authority has offered it, Kay said.
To date, 26 Monmouth County towns, three municipal authorities and one fire district have participated in the financing program. Combined, the nine MCIA Pooled BANs Programs have financed $225,680,000 for municipalities to convert BANs and funded approved ordinances.
"The 2001 Pooled BANs Program bonds were rated AAA by Standard and Poor’s and Aaa by Moody’s," Kay said. "That helped the authority achieve an attractive 4.6045 percent true interest cost in a deteriorating public bond market that was just three weeks past its year-to-date low after 10 reductions in the Federal Funds borrowing rate this year."
MCIA senior underwriter Lawrence Bashe said the MCIA’s ability to conduct a negotiated sale enabled its finance team to postpone pricing the bonds for a day in order to avoid competition from a glut of other public offerings coming onto the market.
"The market improved a little the following day and even though we still were in a deteriorating market, the authority achieved an attractive 4.6045 percent true interest cost," Bashe said.
The 2001 MCIA Pooled BANs Program illustrates several of the capabilities of improvement authorities.
"Our finance professionals’ flexibility to respond to changes in the bond markets on the days when we price the bonds consistently has reduced borrowing costs for the participating municipalities," Kay said.
Douglas Bacher, the MCIA’s financial adviser, explained that towns 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 municipalities maximize that conversion process by pooling their needs into a single MCIA bond sale.
Five of the towns in this year’s program refinanced BANs with maturity dates between Jan. 11 and Feb. 28, 2002.
"The refinancing of those BANs is considered the current refunding, which enables those participants to invest their proceeds from the Pooled BANs Program without restrictions and keep the earnings they generate before using the money to retire their BANs without need for rebate," Bacher said. "In addition, the MCIA was able to design amortization schedules that created level debt to meet the specific debt service needs of three of the municipalities."
By serving as a pooling agent for the municipalities, the MCIA was able to lower the financing costs to each through economies of scale.
The MCIA’s 2001 Pooled BANs Program Participants:
• Hazlet, $3,863,000, BANs;
• Holmdel, $6,704,000, BANs and Unfunded Ordinances;
• Long Branch, $5,928,000, Unfunded Ordinances;
• Marlboro, $7,842,000, BANs and Unfunded Ordinances;
• Middletown, $7,933,000, Unfunded Ordinances;
• Shrewsbury, $3,200,000, Unfunded Ordinances;
• West Long Branch, $2,479,000, BANs.