Remember that bond financing deal for Hinds County we discussed a few days ago and the ruckus between Peggy & George over hiring a financial adviser? Supervisor Hobson-Calhoun sought to hire a financial adviser to restructure and refinance $50 million of bonds to help fund the Byram-Clinton corridor project. Well, posted below are some of the details of the proposed deal. Go to page 6. The savings column.
Once again, financial advisers recommend doing a deal that will bring in millions of dollars to Hinds County - in the near future. Just one problem: The deal will cost $5.4 million after the bonds expire. The deal will pay Hinds County $1.8 million in 2013 and $2.0 million in 2014 and $2.0 million again in 2015. Hinds County then has to pay $292,000 a year for twelve years. Hinds pays $3.0 million in 2028, $1.15 million in 2029, $3.1 million in 2030, and $550,000 in 2031.
HOWEVER, the net present value savings are $1.0 million. Standard cash flow analysis states if the net present value is above zero, then the project should be accepted. Tony Stovall of Rice Financial Products made this point in the video below when Supervisor Phil Fisher brought up the $5.4 million cost.
27:00 in this video:
and the beginning of this clip:
9 comments:
The problem would be what interest rate they are using, is it legitimate, and could the rate used to discount the cash flows over time changes, resulting in a "good" paper decision now and a poor decision a few years down the road. Remember, if interest rates had gone up, Jefferson County, Alabama wouldn't have had problems.....despite engaging in a risky derivatives transaction.
Another great evidence-based post with source documentation. Thanks KF.
Was there any other information provided like notes about terms, calculations, interest rate assumptions? This is a bit of a cluster f of a document.
That is some pretty heady stuff, but if I am reading it correctly "Net PV of Savings" is negative (which I am not even sure is a true financial measure).
That said, the Savings on the project are negative by $1.0MM. That would lead me to believe that there are three scenarios:
1. Interest is inflated
2. Fees are inflated
3. Premiums on future payments are inflated given the current cost of money
Other than that, my only real objection is a cover sheet that shows an executive summary. What is needed, what does it cost, what are the assumptions?
Actually in Jeff County the implosion took place because interest rates jumped up overnight when the bond insurer was severely downgraded.
It's a good thing you have some expert consultants to give unbiased and competent advice. Even after all the skims they are saying it is a good deal for someone.
Seriously, this document does seem rather incomprehensible and I've read red herrings and bond docs on many an occasion. EMMA and EDGAR are where it is at. I'd be surprised if any of the decision makers could even begin to use this document to explain the actual details of the proposed transaction.
What could go wrong?
What we need to do is have the PERS evaluators reviewing bonds and the Bond Consultants reviewing PERS.
That way, the correct rate of return/interest rate assumptions would be in place.
Another stab at PERS on an unrelated thread?
Get a life. The comment was absolutely appropriate and if you don't get it, I can't help you.
not really sure what to make of it
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