School Bonds Sell At Good Time, Saving Millions

School improvement bonds issued to pay for construction of the new and were sold last Thursday for what Town Manager Bill Sequino called “an extremely good price.” While upcoming budget figures were not yet available, Sequino said that means the 2013 budget (and beyond) will not take as big a hit from debt service payments as previously anticipated.

In addition, the town received a “premium” of $3.6 million. That translates into more than $5.5 million when added to the estimated $2 million the schools and town had decided out of the $52 million not to bond. (A bond with a par value of $1,000 is selling at a premium when it can be bought for more than $1,000, according to Investopedia.com.)

That more than $5.5 million “represents 11 percent of the original bonding authority” that will NOT be bonded, Sequino wrote in a memo to members of the Town Council.

“This is good news for the town,” said Council President Michael Isaacs Monday. “The interest rate we got is much lower than expected and it will be helpful to us this year and going forward.”

Sequino said the bonds were sold “within two days of the municipal bond market being at its all-time low ever.”

Isaacs said East Greenwich got the benefit of that low rate because of good fiscal management. “The low interest rate and the money we saved in the costs is attributable to the management and fiscal responsibility we’ve shown in the town of East Greenwich that makes our bonds desirable,” he said. “Bond holders are eager to buy bonds from stable municipalities.”

In anticipation of the bond sale, rating agencies Moody’s and Standard & Poor issued AA1 and AA+ ratings (respectively) for EG’s bonds. That rating (AAA is the only rating higher), together with the good market climate and an aggressive payback schedule, are the reasons East Greenwich was able to get such a good price for its bonds, Sequino said.

“It was a good deal. It was a good sale. We lucked out. As a result of not issuing some of the bonds, we actually lowered the debt service we have put into the budget for fiscal year ‘13. So we saved money there as well,” Sequino said. “This is like a great play for the Town of East Greenwich. We got the benefit of selling when the market was low.”