Buyer's Remorse? The Devil is in the Details.

It's been interesting to read articles in the Argus Leader after the election and listening to the bond council presentations. It's kind of like buyer's remorse when you've bought a big ticket item and then you go home and wonder what the heck you have done and how you are going to pay for it. Don't anyone get their pants in a wad since I am sure the yes voters do not have buyer's remorse yet.  It's just that it's interesting to hear certain things slowly come to the surface since reality has set in.

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.

This is all very interesting because now the rubber hits the road. The devil is in the details. Citizens voted yes on the cost of $115 million for construction.  The train is leaving the station. After 2nd reading next Monday, publication of the ordinance and 20 days after publication (referendum period), they will move forward to authorize the execution of the contracts and documents to close the transaction. Issuance of the bonds will occur in mid to late January 2012. That's when we will all know just how much that $115 million construction loan will actually cost long term.