City to issue $12.9 million in bonds
Municipal bonds would help fund the new marina, Beach Walk
By LESTER R. DAILEY
Article published on Wednesday, Aug. 6, 2008  |
CLEARWATER – When city officials found themselves in need of $12.9 million to put the finishing touches on the $30 million Beach Walk project and partially fund the new $11 million downtown marina, they considered the standard vehicle for cities in need of money: a municipal bond issue. But they decided to pursue a less traditional route.
“Raymond James and Associates Inc., the city’s financial adviser, has determined that the most favorable financing vehicle currently available is a negotiated bank loan,” a staff memo to the City Council explained.
But what the city ended up with isn’t a traditional bank loan either. It is sort of a hybrid between a bank loan and a municipal bond issue.
In a traditional municipal bond issue, an investment firm underwrites the city’s bonds and markets them to individual investors who are attracted by the fact that municipal bond interest is tax-exempt. But in this case, the city proposed issuing $12.9 million of city of Clearwater improvement revenue bonds, series 2008, to a single bank, which would give the city a 20-year loan for that amount. The bonds, which are secured by the city’s public service tax revenues, will not be offered to the public. They will pay interest semi-annually on Feb. 1 and Aug. 1.
A dozen banks and financial institutions were invited to submit proposals, but only three did. Of those, Branch Bank & Trust Company submitted the most favorable rate: 4.66 percent, fixed for the life of the loan.
“We feel that this rate is a good rate, considering what the current market is,” Margie Simmons, the city’s finance director, told the City Council members at their Aug. 4 work session.
The marina portion of the loan includes two years of capitalized interest, as well as the construction costs, so there are no principal payments until the third year. This will allow time for the marina’s 140 boat slips, which are expected to be finished in July 2009, to start earning rents to help offset the interest payments, which will not exceed $763,668 per year. Over the 40-year projected life of the marina, its net revenue from the rental of boat slips is expected to average $222,000 a year.
Closing on the bonds is scheduled for Aug. 12. BB&T will be reimbursed $19,000 for the cost of having its lawyers review the documents connected with the deal. Even so, Simmons feels that, in the end, the unorthodox arrangement will give the city a better bottom line than a traditional municipal bond issue.
“Unfortunately, the municipal bond market is in a shambles right now,” she told the Council members. “This is a very favorable rate compared to what we could get in the traditional bond market.”
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Article published on Wednesday, Aug. 6, 2008
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