Atlantic City Council approves loan and bond purchase agreement resolution
March 1st, 2012 by Ric Hanson
The Atlantic City Council Wednesday evening adopted a resolution expressing the City’s intent to enter into General Obligation (G-O) loan and Bond purchasing agreements with Ruan Securities, in the amount of $4.95-million. The move came during a special Council meeting, and followed public hearings on both issues. Chip Schultz, with Ruan Securities in Des Moines, acts as the City’s Bond Counsel. Schultz said the agreement with the City of Atlantic is exciting, because the timing is perfect, considering the current interest rates. Schultz said “It’s pretty spectacular that (the City) can borrow almost $5-million at just over 2% interest.” He said the bond issue covers the City’s planned Street and Storm Water Improvements, as part of the 2011 projects, Building and Park improvements and equipment acquisition, which the City has previously accomplished through an arrangement with Atlantic Municipal Utilities.
Schultz said the payment structure plan works out to 15-years, and includes Bond Issuance’s for 2013 and 2014. He says that makes for “A manageable Tax Levy, going forward.” He says interest costs on the bonds amount to $828,000, which is less than 20% of the issuance itself. Schultz said when started in the business 13-years ago, an interest cost less than one-half the amount par amount, or $2.5-million in this case, you thought you’d be getting a pretty good rate on your bonds.” But the City’s paying 18%, is advantageous.
Schultz says the City will have about 30% of its Debt Capacity remaining, or $4.9-million of legal debt capacity, after the new bond issuance is in place. Additional debt capacity will be made available after principal payments are made on June 1st. In previous years, the City ran it’s Debt Capacity at 45-to 50%, so being at around 70% is “getting up there,” according to Schultz, but since the City will be paying-off almost $2-million in debt through June 1st, 2014, that will make the capacity more reasonable. Schultz says the City of Atlantic currently has a Standard and Poor’s bond rating of A+, which is in the upper eschelon of the “A” category.The highest bond rating is “AAA,” next is “AA,” followed by “A”. Atlantic is in the latter category. Anything with a BA+ or worse, would be considered a “junk bond.”
During the Council’s meeting on March 7th, they’ll act on authorizing the issuance of the 2012 G-O Bonds, which will include authorizing the redemption of 2007 G-O Bonds. That takes place on June 1st, and will save the City $45,845 in interest costs over the next five-years. Schultz said funds from the 2012 G-O Bonds will be delivered to the City on Wednesday, March 28th. The bonds will be cull-able, on June 1st, 2019, if the City desires.