Jackson is at it again, playing the bond refinance game. Bill Campbell reported in the Clarion-Ledger:
"Hoping for a quick strike in a volatile bond market, the city of Jackson has hired a team of strategists, aiming to save $1.5 million in debt on bonds issued in 2002 for water-sewer system work.
The city has hired Malachi Financial Products as financial adviser, in addition to attorneys and underwriters, whose purpose will be to land an interest rate that will give the city a little pocket change while it pays the tab on a $40 million 2002 bond package...
"We're looking at ways to get some money into our coffers, and one of the ways is restructuring some debt in our water and sewer refunding," Jackson Mayor Harvey Johnson Jr. said Tuesday."
Newspapers typically don't give the whole story on municipal bonds so JJ has done some digging. Follow the money is the old adage and its no exception in this case. The fees will be $400,000. Thus Jackson will spend $400,000 to save $1.1 million. Here are the fees:
Phelps Dunbar & May Law Group: $90,000
Baker Donelson & Begley Law Firm: $150,000
Malachi Financial Products: $110,000
Rice Financial Products & Loop Capital Markets: $4.75 per bond. Each bond is $1,000. If the total amount of bonds is $25,155,000 at $4.75 per $1,000, the cost for Rice and Loop is estimated to be $119,486.
Total: $469,486.
The fees are gleaned from these documents that were given to the city council in a Monday work session in a presentation on the bonds.
The council approved the bonds on March 22, 2011. Voting to approve the refinance were Bluntson, Stokes, Tillman, Yarber, and Whitwell. Barrett-Simon and Lamumba were absent. Copy of minutes.
However, there is something missing from what was given to the City Council: no coupon rates, no bond schedules, list of payments, or schedule of cash flows. Basic information one needs when determining whether such a refinance is a good idea. JJ filed a public records request for all documents associated with the proposed transaction. Here is what was provided by the city:
The documents appear to be the same. However, you will notice the second set of documents is 18 pages while the first set is only 12 pages. The missing pages contain a Restructuring Summary of the debt itself, a schedule through 2034 of the cash flows,savings, and costs, and other similar summaries.
Page 14 is where the fun starts (and by the way, I had a tough time analyzing these tables. Feel free to help me out in the comments. I gave these documents to three different financial experts and got three different answers.). It states the city will refund $19,340,000 in bonds and restructure (think extend the term) $7,150,000 for a total of $25,155,000. The refunding saves $722,396 but the restucturing costs $1,220,101 for a total loss of $387,255. These savings and costs are for the entire life of the bonds. The city actually saves $7,173,517 in 2011 and 2012.
Page 15 is even more fun as it breaks down the costs and savings on an annual basis. The total expense for the deal is $5.5 million. The extra money the city gets from the deal is $7 million (page 14). The city realizes its claimed $1.5 million savings by subtracting the total savings costs of $5.5 from the $7 million. The city in effect pays $400,000 to save $1.1. million. These are semi-educated guesses so feel free to chime in with your own analysis or estimates.
However, it is interesting the city council wasn't given these charts or tables.
3 comments:
Here is the CL story:
oping for a quick strike in a volatile bond market, the city of Jackson has hired a team of strategists, aiming to save $1.5 million in debt on bonds issued in 2002 for water-sewer system work.
The city has hired Malachi Financial Products as financial adviser, in addition to attorneys and underwriters, whose purpose will be to land an interest rate that will give the city a little pocket change while it pays the tab on a $40 million 2002 bond package.
That amount is only one-tenth of the $400 million the city faces to renovate its crumbling sewage system.
"We're looking at ways to get some money into our coffers, and one of the ways is restructuring some debt in our water and sewer refunding," Jackson Mayor Harvey Johnson Jr. said Tuesday.
Porter Bingham of Malachi said his financial advisory firm has represented the city in "a number of its financial transactions."
Other firms represented on the team include Blue Capitol Markets, Rice Financial Products, Baker-Donelson law firm, Phelps Dunbar law firm.
He said typical market standard is about 2 percent of the face amount of the bonds.
The analysts will make "a little south of $400,000," Johnson said, but the $1.5 million represents the city's net goal.
An opportunity to refinance at a savings of more than $2 million was lost because the city didn't have the financial players in place before the market changed.
"The market is probably not as favorable as when we started this, but there are some good factors involved," the mayor said. "We agreed to engage these professionals and have them under contract so when the market is favorable, we can move on it."
He acknowledged that $1.5 million is a small percentage of the price tag of infrastructure repair the city faces to update its water-sewer system.
"The motivation is to save some money. It won't be a whole lot," Johnson said.
"I know $1.5 million is a lot of money, but we can't do any major projects for $1.5 million
Back at it again. Lulz....
To my knowledge, Sam Begley has ZERO expertise and experience doing bond deals. Baker Donelson must be bringing him for political reasons.
Sam and the Mayor are buddies and Sam is there to grease the skids for Baker Donelson. Our tax dollars at work
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