I had a chance to take a look at the fundamentals of the bonds the
city is looking to refinance. The analysis in the APP is that they
are little more than a cash out re-fi to help balance the budget.
But the truth is actually a little bit stranger.
The APP says the current bonds were $12.8 mm issued in 1989 at 7.6%
and refinanced in 1995. What it doesn't say is the 1995 issue was
only $9.67 mm at 5.3%. The council in 1995 was able to shave off
$3.1 mm of the original bond deal. Also, the 1995 deal was rated AAA
(the highest rating) and insured against default by FSA, an
insurance company. Regardless of what people would have you believe,
the current Baa3 rating isn't the highest in the city's history, and
the city had a AAA rating as late as 1995.
Current interest expense on the 1995 debt is $512,510. (i don't
count principal payments, which is what I assume the $1.2 mm figure
cited includes, because either way you are paying principal down). A
NJ Baa3 bond maturing in 2020 is currently paying 4.9%. So, interest
expense on $18 mm at 4.9% is $882,000 per year, or a 72% increase in
interest payments.
Another interesting feature of the 1995 bond is it is not "callable"
(able to be refinanced) until December 1, 2005. So regardless of
whether the current council makes it seem like this is a critical
issue that needs to be addressed IMMEDIATELY, they can't do anything
until December. It is much wiser for citizens to insist that this be
debated and possibly tabled until the new council takes office in
July.
What could POSSIBLY be the reason the current council wants this
bond, which isn't callable until December, to be settled before May
10???
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