Town To Use Bonds To Fund 30 Projects
June 18, 2009 by Josh Morgan
The Town issued more than $7 million worth of bonds Tuesday afternoon that will be used to fund 30 capital projects over the coming years.
A total of $7.23 million in general obligation bonds were issued with a 3.9 percent interest rate over the 20-year life span. Of the 30 projects, 15 will be general government projects, seven will be for the wastewater treatment plant, and eight will be school-related projects. The most significant of these projects include $1.2 million for land acquisition; $700,000 for road repairs; and $500,000 for the Lilac Drive pump station.
“We originally intended to sell bonds in the fall, but because of the market conditions being so negative, we decided it would be better to wait,” explained Town Manager Michael Milone. “Last fall, there was a very limited opportunity to sell bonds and interest rates were high.”
A total of five bids were received for the bonds and Fidelity Capital Markets was awarded the sale for being the lowest bidder. Milone said that, after consulting with the Town’s financial advisors, the decision was made to wait and “hope the market stabilized.” Historically, the Town would sell bonds each year, but because of “healthy reserves and greater cash on hand,” Milone said bond sales now occur every two years.
“The last time we had a bond sale was in December of 2006 and this was by design,” Milone said. “We used to be in the bond market every year, but now don’t have that type of pressure to borrow as much and we can stretch out our sales.”
Finance Director Patti-Lynn Ryan expected the interest rate would have been around 5 percent if the bonds were issued last fall. She explained that the Town saved more than $800,000 over the 20-year life of the bonds by waiting and receiving a lower rate,
“Interest rates really dropped off precipitously in January and continued to go down,” Ryan said. “That’s why we always watch the market and just don’t issue bonds at a certain time.”
To prepare for the bond sale, Milone and other Town officials met with Fitch Ratings and Moody’s Investors Service to discuss Cheshire’s credit rating. Each agency conducted its own review of the Town’s financial data and trends, which proved to be beneficial to the Town in the end, Milone explained. Fitch Ratings upgraded the Town’s credit rating from AA to AA+, which is the second highest rating. Moody’s maintained the Town’s rating of Aa2, which is a positive considering the economic climate, Milone said.
He described the ratings as “a report card on the overall health and quality of life of the community.”
“The ratings have a lot of intangible benefits,” Milone said. “It could help attract or keep businesses in town. It’s a statement of strength and economic indicators. This is more than just getting a lower interest rate.”
Milone said the decision to wait was wise, as the interest rate, which is considered low for 20-year bonds, would have been higher if the sale occurred six months ago. With a competitive market, the interest rate was better, Milone said, which wouldn’t have “materialized in the fall.”
“It was a less competitive market in the fall with a lot of uncertainty,” Milone said. “The rates were very high in the fall and (waiting) worked out really well for the Town.”
Ryan said she was “very pleased with the outcome” of the bond sale, especially after “anticipating the worst” last fall. She believed the rates “were reasonable” and that Cheshire got a good deal.
“We want to pay back the least interest we can, so obviously we want the lowest number,” Ryan said. “The bottom line is that we will be paying 3.9 percent, and that is great for us.”