Saturday, January 24, 2009

Woodlands Government Bonds for Refinancing Payment to Houston

Well, as the board promised, we have now refinanced the payment to Houston by way of government bonds. This was an extensive effort that was initiated months ago. The bond issue report is very large and has a great deal of data supporting the strength of the community and the rationale for the timing of the bonds. Right on its heels is a bond decision by the Conroe ISD to issue new bonds and refinance existing ones to save some money. Now was the time to act and the township was ready.

As it turned out, over the week before the sale, things changed fairly significantly, showing the need to act quickly in the market. For one thing, some of the wholesale brokers decided not to buy the bonds. Citibank and Merrill Lynch both dropped out. However, Edward Jones came to the plate swinging and bought in to the full near-$18-mil value. As it is, the retail structure that Edward Jones offered saved 0.2 points over their competitors, but fees more than make up the difference according to our consultant

The community fared well in the outcome by using the consultant Drew Masterson of First Southwest. He has been working with us for months on this; we have been poised with great detail, to act on his queue to do so. Although we did not get the bonds sold at the lowest market price of the week, we did manage to get a 4.96+% All-in-True rate, just 0.3 points off of the low. Reviewing the trends of the bond market, revealed a downward trend until this past week when it turned around indicating a probable bottoming of the rate. Using what I believe to be an institutional means, a local MUD did better this past week at 0.5 points below us. The yield map of our bonds ranges from 1.25% at one year to 4.5% over 11-12 years. The bonds mature in 2022(50%)and 2023(50%). For a 10 year bond commitment, a yield of 4% is achieved.

I tried to sort out the rationale of the ratings. This is what I heard and I believe to be near correct. Although we are rated at A+ by S&P, the bonds are priced with the Moody index of A3, because of a technical issue with an assessment technique.

To fully execute, the loan to Woodforest bank will be paid next week on receipt of the payment by Edward Jones. There will be no overlap of interest. This waiting period for lower bond rates and financing the payment to Houston by a temporary loan from Woodforest Bank has proven to be a good strategy by the township board. Had we issued bonds in the fall, the bond rate would have been about 6.5%. That is a $1.0+ million dollar saving over the maturity period. I would like to congratulate the board for their prudent management of our money.

I called Edward Jones on Friday to purchase some bonds, while they were still available. One-half of these tax exempt 10-year bonds were already sold by the time I called. I have now invested in our community. Why would I do this at this low rate of return? Because I believe in the economy of this area, that it will be a stable and secure investment during the current economic crisis. I can put money out there for ten years and so I did. Tax free income will be generated, making this an equivalent to a 6.0+% taxable bond yield. Short term bonds likely have cash flow advantages also, depending on your own personal situation.

The contract is found at the township website : Edward Jones 2009 issue. You will find a table on the rate of return for each year at the end of the document.

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