‘Feeding frenzy’ to own city’s debt

Published 9:39 pm Thursday, August 21, 2014

City Council members spent most of their meeting Wednesday celebrating the city’s new AAA credit rating from the Standard and Poor’s rating agency.

Achieving the gold standard, as well as rating and outlook upgrades from Moody’s and Fitch, the other two ratings agencies, meant significant savings when the city sold $125 million in new and refinanced bonds in the public marketplace at the end of July.

David Rose of Davenport and Company, the city’s financial adviser, said the rating puts the city in “rarefied air.” But, he cautioned, more will be expected of the city from now on.


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“Frankly, it’s easier sometimes to fall backwards when you’re so highly rated,” he said, noting that the city must continue to adhere to its financial policies in order to remain in the good graces of the ratings agencies. “When greatness is achieved, great things are expected.”
The savings include about $9.9 million over the life of loans that were refinanced, or about $400,000 per year. An interest rate that was more than two percentage points better than expected for the new general government bonds also will mean $480,000 less per year the city must use to service that debt. For new utility bonds, another favorable rate will mean about $300,000 less per year than what was estimated.

Credit ratings for municipalities have a similar effect to credit scores for individuals — they affect the ability to borrow money and the interest rate at which it can be borrowed.

But, Councilman Mike Duman pointed out on Wednesday, many factors, including even economic development, are considered for a municipality’s rating.

“We need to understand AAA is more than what your balance sheet looks like,” Duman said.

Adding the savings together, he added, “That’s $1.3 million that can be redirected to any other need we have within the city.”

Mayor Linda T. Johnson said she was “ecstatic” about the rating.

“I’m absolutely ecstatic for our city and what it means,” she said. “It’s a high point in my life. It’s something I wanted, and I wanted it badly.”

Councilman Charles Parr compared the city’s position in 2006-2007— when the city received ratings and outlook downgrades from all three agencies — to now as the difference between a bottom-feeding catfish and a great white shark.

Advancing the metaphor, Rose described the way nearly a dozen bidders fought to purchase the city’s bonds.

“We had a big feeding frenzy, if you want to look at it that way,” he said. “The market was excited to own your debt.”

Bank of America/Merrill Lynch was the winning bidder.