The Common Council met 08/07/2024. The two items separated out for individual discussion and votes were the items related to the issuance of bonds. The first was a request to approve the sale and issuance of $13,500,000 of general obligation promissory notes. The second was a request to approve the sale and issuance of $12,630,000 in sewerage system revenue bonds.
It was reported to the Council that the impact of the jobs report released on Friday 08/02/2024 had resulted in a “very favorable interest rate environment in the last three to four days.” [I take that to mean the stock market dropping by like 3% on Monday resulted in better selling conditions for the city.]
This change resulted in overall savings of approximately $1.6 million compared to the estimated cost presented to the Finance Committee last month on both of the bond sales combined.
The Council voted unanimously to approve the sale.
I’ve prepared a transcript of the discussion for download:
Brad Viegut of Baird told the Council that, in preparing for the sale of the $13.5 million in general obligation promissory note, he had estimated an interest rate for 3.84%. The final rate, however, was only 3.29% which was over half a percentage point lower than expected. The total interest saved with this final rate as compared to the estimated rate was $531,000.
The city had also planned to sell $12,910,000 in sewerage system revenue bonds. The estimated rate for that had been 4.4%, but the final rate ended up being 4.44% which was a decrease of 0.57 percentage points. The total amount of savings for principal and interest payments with the final rate as compared to the estimated rate was $1.1 million. Because of this, the city was able to reduce the total amount it was issuing from an initial figure of $12,910,000 to $12,630,000.
Alderperson Denise Fenton (District 6) asked for more details on why the principal had been able to be decreased from $12.9 million to $12.6 million on the sewerage system bonds. Mr. Viegut explained that there were two primary components of those bonds, the project costs and a reserve fund. The reserve fund was “a debt service reserve that’s held by the city, and if for whatever reason the city is unable to make a payment on the bonds, the investors would have access to that reserve fund. Ultimately, at the final payment date of the bonds, that reserve fund is applied towards the final payment.”
He went on to explained, “[T]hose two major components are funded through a principal issuance and also a premium that’s associated by the difference between the interest rates the city pays (that’s the coupon rates) and the yields. Yields is effectively the cost of the bonding. As the yields come down and the interest rate—the coupon—stays the same, there’s more premium. So, we can offset dollar for dollar the premium generated with principal issued. So, we’re able to reduce the principal amount.”
Mayor Woodford spoke highly of Mr. Viegut and the work he had done both in helping the city develop its long-term debt strategy which had stabilized Appleton’s debt situation and also in working on this specific bond issuance and locking in these great rates.
The Council voted unanimously to approve the issuance of both sets of bonds.
View full meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=1213513&GUID=E74A1E03-B53D-4272-A5A7-6A007CD6EE16
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