Clay County Commission
Dan Haglund
County votes to save $702,000.
The Clay County Board of Commissioners voted unanimously to refinance the 10 years remaining on the 2017 Clay County Jail bond.
Financial consultant Todd Hagen said Clay County will also reduce the overall bond by more than $1.6 million as well as saving hundreds of thousands by lowering the bond’s interest rate.
Hagen, the Senior Municipal Advisor at Ehlers and Associates in Minneapolis, returned to give his assessment and advice to the Board of Commissioners on Tuesday, five weeks after briefing the board on Sept. 23 about the potential sale of the Clay County Jail bond, which carries a balance of just over $17.915 million.
The purpose of the bond sale is to lock in the balance with a more favorable interest rate, thus saving county taxpayers money for the remaining years of the bond.
Hagen presented the board with a sale day report. And an updated bond balance of $16.27 million after competitive premium bids and underwriter profit fees lowered the bond principal by $1.645 million.
With the board’s favorable review, Hagen said the sale can be forwarded with a resolution including the county’s bond attorney at Dorsey & Whitney in Minneapolis.
Hagen also added that he and Clay County Administrator Stephen Larson, Clay County Auditor-Treasurer Lori Johnson and Standard & Poors analysts culminated a credit rating process for the county as well, which turned out quite favorably.
“When we get a bond rated, it’s easy for prospective bidders to just look at the (national) rating,” Hagen said.
The county was bond rated a year ago, and the additional payments since then have been added to determine the present number. Other factors considered for the rating include local economic outlook as well as recent audits.
The most recent rating was once again AA-stable, which signifies a firm with very high credit quality and a low risk of default, indicating strong capacity to meet its financial obligations. The “stable” outlook suggests that this creditworthiness is unlikely to change in the near term.
A rating of AA is the second-highest investment-grade rating that a corporation can receive from agencies such as Standard & Poor’s (S&P) and Fitch.
Other analysis factors Hagen said were favorable to Clay County include “strong reserves, very manageable debt burden, and continued growth in your tax bases’ positive credit factors.”
As of noon Monday, the interest rates bid out by the first competitor Baird (Milwaukee, WI) was at 2.93 percent, which was 0.37 percent less that the presale estimate of 3.30 percent.
The second bid came in from Messirow Wealth Management from Chicago at 3.02 percent. And third was Key Bank Capital Markets from Cleveland at 3.04 percent.
“Any of the three would have been fine with me,” Hagen said. “I like the 2.93 the best, and hopefully you do, too.”
Hagen did express that even though there appears to be just a small difference between the top and bottom bidders, the overall difference between them in the life of the bond is $163,000.
Hagen then broke down the bond savings that would be realized at 2.93 percent of $702,000 over the remaining 10 years.
Hagen also touted the benefit of re-investing the allotted previously bond funds for up to 90 days until the new interest rate kicks in, at the interim rate of 4.01 percent – thus generating about $52,000 in arbitrage monies for the county. He said bond market sales like these into the open market always generate more favorable interest rates than with banks.
“I think it’s just a good time to strike and get this thing done,” Hagen said. “If a person would have waited any longer, the feds might have shut down the Securities Exchange, part of our investment strategy as well.”
Hagen said the next “call date” for refinance is in 2033, with a scheduled remaining bond balance of about $6 million.
In public finance, a bond call refers to an issuer’s right to redeem or repay a bond before its scheduled maturity date, allowing the issuer to take advantage of falling interest rates and reduce future interest payments. When a bond is called, the issuer pays investors the principal plus any accrued interest and any applicable call premium, and stops making interest payments to the bondholder.
“This is a great savings to realize for a project that proves such an importance in our community,” said Commissioner Jenny Mongeau, Dist. 3. “But for us to see a sizeable savings I think is really helpful in times when we’re all trying to do more with less.”