Much like a homeowner refinancing a mortgage to get a lower interest rate, the city Monday refinanced $14.4 million in general obligation bonds. City Finance Director Matthew Grady said the transaction will save the city $750,000 in interest over the life of the new bonds.
Much like a homeowner refinancing a mortgage to get a lower interest rate, the city Monday refinanced $14.4 million in general obligation bonds. City Finance Director Matthew Grady said the transaction will save the city $750,000 in interest over the life of the new bonds.
That’s about $100,000 more than he forecast the transaction would save when he described it to the City Council’s Administration and Public Works Committee on Dec. 11 when aldermen approved the deal.
The city was dinged by Moody’s Investors Service on Friday when the rating agency renewed the city’s top-level triple-A credit rating, but lowered the city’s credit outlook from stable to negative — which means the firm believes there’s a greater than 50 percent chance it will have to downgrade the city’s bond rating within three years.
Moody’s said it is worried about the increasing unfunded liability in the city’s police and fire pension funds.
But despite that, the bond issue sold at a 4.2 percent interest rate, slightly higher than the 4.1 percent that Mr. Grady predicted for the aldermen. He said the tax-exempt bond market has set records for low interest rates weekly for the past two months, and rates are now at a 35-year low.
The new bonds refinance bonds issued in 2002 and 2003. Mr. Grady says he will seek City Council approval for another bond refinancing next February of bonds issued in 1997. That issue will be offered in conjunction with the city’s annual capital improvement program. He said he anticipates that refinancing will save the city another $500,000.
Mr. Grady, who was appointed finance directory by City Manager Julia Carroll in September, said, “We will tackle the hard issues presented by the pension obligations in the first quarter of 2007.”
The city is considering issuing bonds to refinance at least a part of the pension debt, as well as increasing its cash contributions to the pension plans
In maintaining the city’s Triple-A rating, Moody’s cited the City’s, “favorable reserve levels, considerable revenue raising options available under home-rule authority and the city’s demonstrated willingness to adjust revenues and reduce expenditures so as to sustain structural balance.”Â
The Moody’s report also cited, “considerable downtown redevelopment projects underway, the economic stability provided by the presence of Northwestern University and the city’s favorable location on the North Shore of Lake Michigan adjacent to the City of Chicago.”
Fitch Ratings maintained the city’s triple-A bond rating and its stable outlook.
Fitch said its decision was “based on high residential wealth and income levels, a record of strong financial management, which limits financial exposures, and a manageable debt burden.” Â
Fitch said, “Utilizing a diverse revenue stream, the city produces steady operating surpluses. Expenditures demonstrate high service standards, which the electorate is willing to support through a higher tax burden. Still, city management has responded to recent economic pressures with careful and timely budgetary adjustments.”
The bond offering was underwritten by William Blair & Co. and Siebert Brandford Shank.