News
Monmouth County Guaranty Helps 10 Towns Save $2.5 Million
By Ryan Fennell
FREEHOLD - The Monmouth County Improvement Authority's sale of $40 million in bonds for the 2008 Fixed-Rate Pooled Loan Program saved 10 towns a total of almost $2.5 million as a result of the county guaranty of the bonds. In addition, investors paid premiums for the MCIA bonds that the towns used to reduce the amount borrowed by $1 million.The Monmouth County Board of Chosen Freeholders' approval last month of the county guaranty extended Monmouth County's excellent credit rating to the MCIA bonds, making them attractive to investors in what has been an unpredictable tax-exempt bond market. "If the Freeholders had not extended the county guaranty, this bond sale would not have gotten done," said the MCIA's senior underwriter, Lawrence Bashe. The guaranty enabled the 10 towns participating in the $40,075,000 pooled financing on Nov. 12 to take advantage of Monmouth County's credit rating regardless of their individual underlying credit ratings. Monmouth County carries AAA credit ratings from Standard & Poor's and Fitch Investor Services and Aaa from Moody's Investor Services. "As a result of the county's high credit rating, the MCIA bonds achieved an attractive true interest cost of 4.417%," said MCIA Chairman Al Rosenthal. "Compared to the interest rates each town would have had to pay if they sold bonds based on their individual credit ratings, the MCIA bonds achieved an aggregate savings of $1,985,007 in debt service costs alone. That is a strong, positive result. But it's fair to say that the most important element of the county's participation is that without the county guaranty this program could not have continued this year."
In addition, the 10 towns realized savings in their costs of issuing the bonds from economies of scale by pooling their needs into a single bond sale through the MCIA. The towns also benefited from the Improvement Authority's ability to conduct a negotiated sale, an ability the towns do not have when entering the bond markets on their own. While the MCIA's professional finance team sold the first maturities by competitive bid, they were able to improve the pricing during the remainder of the sale conducted on a negotiated basis.
The economies of scale and the negotiated interest-rate improvements generated $459,233 of added savings.
In total, the MCIA bond sale saved the 10 towns $2,444,240. The individual savings vary based on the amount each town borrowed, the maturity of the bonds and the underlying credit ratings of the town.
Municipalities use the Pooled BANs Program to convert short-term bond anticipation notes to fixed-rate permanent financing and to fund new ordinances.
Allentown, Keansburg, Oceanport and Shrewsbury used proceeds from the MCIA bond sale to fund new ordinances and refinance BANs; Eatontown, Highlands, Holmdel and Manalapan refinanced BANs, and Freehold Township and Middletown funded new ordinances. The Freeholders agreed to extend the county guaranty to lessen the impact on the municipalities of the deterioration of the municipal bond insurance industry, which has dwindled from seven AAA-rated bond insurers to two over the past year. The MCIA entered a tax-exempt bond market that was recovering slowly from the liquidity and credit crisis that froze bond sales just three weeks earlier. In spite of what has been tepid investor demand since the start of the credit crisis, a mix of retail investors and institutional investors - money manager, insurance companies and bond funds - purchased all of the MCIA bonds within minutes of the start of the bond sale. "We were a little concerned on the day of the sale because major bond sales by the states of New Jersey and New York and another AAA-rated New Jersey county were scheduled for the same day," Mr. Rosenthal said. "Our professionals were able to move quickly and sold the MCIA bonds before either of the two state bond sales began."
Not only did the MCIA bonds sell quickly, investors paid a total of $1,431,233 in premiums to buy them. That money was used to pay financing costs and reduce the original amount the towns had planned to borrow by more than $1 million or about 2.5 percent.
In the 16 years the MCIA has offered the Fixed-Rate Pooled Loan Program, 37 towns, three local and regional utility authorities and one fire district have secured more than $481.9 million in fixed-rate financing while realizing combined savings of $12.74 million in debt service savings alone. Eight of the municipal governments in this year's program have participated in previous Fixed-Rate Pooled Loan Programs, most multiple times. Keansburg, whose Municipal Utilities Authority has been in two prior programs, and Freehold Township are new to the program. Middletown Township has been in 15 of the 16 MCIA Pooled BANs Programs.
The Monmouth County Improvement Authority provides alternatives to traditional methods of public finance for municipalities, boards of education, local and regional authorities, various county government entities and volunteer first-responder organizations. Over the past 22 years, 49 of Monmouth County's 53 municipalities have participated in MCIA programs, which have provided more than $1 billion in public financing and reduced the burden to taxpayers by tens of 2008 Fixed-Rate Pooled Loan Program Participants.
