Listening to the presentation last week when the bond presenters said the final maturity date of the bonds could be as late as 2037 gave me pause. We were told the bond debt would be for 22 years. I guess we will find out how long the bond debt will actually be in January 2012 when the bond sale is finalized. The actual bond amount will be $115 million plus the cost of insurance, capitalized interest and the $9.5 million debt service reserve fund.
So, how much will the city pay in interest? What exactly is going to affect the interest the city will pay on those bonds?
- It gave me pause when I heard that federal government gets concerned when tax exempt bond proceeds get used for private purposes. We might have to issue a combination of tax exempt and taxable bonds which could drive up the interest rate. The issuance of all tax exempt bonds could possibly limit operations that precludes revenues from private sources who benefit from the using the facility. The bond company will structure the bonds to maximize the city's ability to enter into private contracts with private sources to maximize the revenues. The bond council said the only reason you issue taxable bonds is you perceive the benefit of having the flexibility to generate private revenue from private users is going to be more than pay you back. So, I guess we will see how much their analysis says private revenues will be forecasted when we see the percentage between the tax exempt bonds and the taxable bond structure.
- Because of the issue size of the bond, the recommendation is to get two bond ratings, one from Standard and Poor's and one from Moody's. Normally, the city only got one bond rating in past bond debt issues. With two bond ratings, you get more people interested in bidding on the bonds because of the size of the bond. Each bond rating will cost $65,000 which is built into the bond proceeds.
- Bank qualified or non-bank qualified? Anytime you issue more than $10 million in a calendar year, the bonds become non-bank qualified. From a bank's perspective the bonds are not as attractive to buy because they can't write off the interest cost so you tend to pay a little higher interest rate for bonds that are not bank qualified.