On 07/21/2021 the Common council voted to approve over $30 million worth of promissory notes and bonds.
Prior to the Council meeting, the Finance Committee met briefly to review the final interest rate figures and vote on whether or not to recommend moving forward on the issuance. They had previously listened to a presentation from Baird Financial representative Brad Viegut that included estimates of rates, but on 07/21 the final figures were available.
Brad was there again to walk them through an updated version of the presentation he had given on 07/12. He was quite pleased with the final numbers he was able to present. The morning of 07/21, Baird went out in the marketplace and held a formal order period to lock in interest rates. The market was at near record lows for city financing.
Over the previous week and a half interest rates in the municipal market had gone down. A couple days prior to 07/21 the stock market had dropped significantly which caused a decrease in the 10 year treasury. Although it’s not a one to one connection, municipal rates are correlated to treasury rates and they did see some additional downward pressure on municipal rates as a result of that change on the 10 year treasury. On 07/20 the market was red-hot for municipal bonds, and Baird was actively premarketing all three of Appleton’s obligations. There was tremendous interest from investors in purchasing them. The morning of 07/21 they held a formal order period and went out with very agressive interest rates.
On the general obligation debt, they had signifiantly more buyers than notes to sell and, therefore, were able to reduce the interest rates further after the order period.
On the two revenue bond issues, the first 10 years of maturity sold very quickly, but they had some headwinds for the last 10 years. They again went out with an agressive scale, but the interest rates in maturities after 10 years started to increase, so they had to make some adjustments off of their initial interest rate scale, but were ultimately able to lock up both revenue bonds at less than 2% interest.
He then moved into a walkthrough of the summary documents.
Page two was a summary of the general obligation issue. It was a $14.5 million note issue to fund capital projects in the city’s 2021 Capital Improvement Plan. They did include a call feature beginning in 2028 so the notes that mature in the final three years are eligible to be called at the city’s option. The 1.12% interest that was available was significantly less than the 1.58% estimate used for planning purposes.
Moody’s affirmed the Aa1 rating for the city’s general debt. Brad reminded the committee that that was the second highest rating that Moody’s assigns and puts the city in a very elite class. There are very few Aa1 issuers nationwide. That rating also helps to keep interest rates very low.
Page 3 provided the detailed repayment schedule. That was there as a reference point, and the columns on the right hand side gave an illustration of what the future debt service would look like. He reminded the committee that, as mentioned during the previous meeting, as the city has future bond issues in upcoming years they would layer those payments in so the right hand column would change.
Page 4 gave a summary of the water revenue bonds. This was a 20 year repayment. This had two purposes/parts: 1) $7 million for water projects and 2) a refinancing/refunding of the 2011 revenue bonds. The refunding of that debt generated $272,000 of debt service savings which was about $47,000 greater than what they had estimated for planning purposes. The interest rate on these bonds was 1.86%. They had estimated 2.29% , and to see a 20 year revenue bond under 2% was not normal and was an incredible interest rate. That bond was assigned an Aa2 rating by Moodys, just one notch lower than the general debt, which was a reflection of the revenue pledge as opposed to the general obligation pledge.
He noted the principal amount was less than what was posted on the agenda ($8.265 million vs $8.36 million) because as they finalized things earlier that day, they were able to reduce the borrowing amount while still covering both the refunding and the new money needs.
Page 5 showed debt service payment schedule for just the revenue refunding bonds. Those were roughly level payments from top to bottom. Rates were 1.96% just for that component.
Page 6, had an illustration of the impact of the refinancing. He thought the most important column was the far right column which illustrates the budgetary savings from refinancing that debt. Annually the savings range from $25-$30,000. He reminded them that they did not extend the repayment period of the original 2011 debt, and were just exchanging higher rates with lower rates to secure these savings.
Page 7 covered the sewerage system bonds. The final amount for these also differed from what was on the agenda ($8.845 million vs $9.04 million) so it had also been lowered. These bonds funded $7 million of sewerage system projects and also covered the refunding/refinancing of 2011 bonds. These also had a 20 year repayment. The interest rate was 1.82% (as compared to the 2.25% which had been estimated). The refinancing component resulted in $347,000 of savings which was $57,000 greater than they had estimated for planning purposes. Appleton got some really signifiant savings from the refundings.
The 20 year repayment schedule for the sewerage system bonds was shown on page 8. When they isolated just the refinancing component, that had a 1.93% interest rate.
Page 9 showed an illustration of the refunding. It had an annual savings of $35-$40,000. Again Brad mentioned that payments were not extended for the 2011 bonds. They were just exchanging lower interest rates for higher ones.
He said the updated rating reports from Moody’s were very strong and included no significant change to any of the language that Moody’s had used in prior reports. He said Moody’s talked about the city’s growing tax base, strong financials, and rapid debt repayment. Those were factors that went into the Aa1 rating. For the two revenue bond issues, moderate debt and ample liquidity were some of the positive factors Moody’s cited.
He concluded by saying, overall, this was a successful set of financings.
Neither the committee nor any of the alderpersons who were not on the committee had any questions, and the Finance Committee voted unanimously to recommend approval of issuing the bonds.
During the Council meeting, the figures and interest rates were given but the presentation was not given again. [I would expect most if not all Council members were present for the Finance Committee meeting that had taken place right before the Common Council meeting.] The Council had no questions.
Alderperson Joe Martin (District 4) commented that they just dealt with millions of dollars and no one asked for anything, or spoke about any of the millions of dollars.
Alderperson William Siebers (District 1) said he didn’t want to disappoint his fellow colleague [by not commenting on the item] and wanted to point out that Appleton had received the second highest rating that any community could receive. That was a plus in terms of how well Appleton manages its funds. The interest rates they were given that evening are great rates and examples of how Appleton handles its debt.
There was no further discussion and the issuing of the bonds was approved unanimously.
View full special Finance Committee meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=879285&GUID=154C9EFE-1362-4FC6-8403-B4CB2761EF92&Options=info|&Search=
View full Common Council meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=867241&GUID=B9061662-1925-4BE6-B084-6279053B76A2&Options=info|&Search=
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