JDA bond insurer downgraded
By Tara DeRock Mahoney
Senior Staff Writer
Members of the Jasper, Morgan, Newton, and Walton Joint Development Authority (JDA) heard presentations last week from two financial advisors, after learning that the firm that had insured the group’s 1999 $9 million bond issue had been downgraded and that the bonds’ heretofore highly preferential interest rate was at risk.
According to Bill Johnston of Raymond James Financial Services, five of seven bond insurers in the United States have recently been downgraded from AAA to AA or lower, something that has never happened before in the financial market.
“It’s a very, very tough situation,” said Johnston, who was involved with the original issue of the taxable bonds. Over the bull bond market of the past eight or nine years, the JDA’s variable rate bonds have cost as little as one percent at times. More recently, they have been at 2.5 percent. But with the downgrading of their insurer, Ambac, the bonds have moved into what is known as “bank mode,” and if the bonds are not re-insured by the end of September, the interest rate could skyrocket to 7.5 percent.
To keep that from happening, JDA members voted unanimously to move immediately to secure a letter of credit (LOC) from the Bank of America, one of only a handful of financial institutions offering letters of credit at any price, according to Johnston. The cost of the LOC will likely add a couple of percentage points to the interest rate on the bonds, but that is the cost of doing business in the current financial climate, said Johnston.
Even if the interest rate on the bonds were to increase slightly, averaged over time they have still performed better than the market average in recent years.
“We’ve enjoyed some pretty favorable rates over the first nine years,” said member Denny Dobbs of Walton County.
The JDA used money raised by a four-county bond issue to purchase nearly 1,500 acres of land on I-20 near the juncture of Morgan, Walton, and Newton counties. The land is being developed by TPA Realty Services for the JDA as an eventual live-work-play community called Stanton Springs, it is expected to be anchored by light industrial or technological tenants.
The fees involved in purchasing the letter of credit and remarketing the bonds could top $90,000. However, since the bonds are being held by the liquidity provider--and the JDA is being charged nearly $700 per day to hold the outstanding $6.8 million in bonds--board members decided that the speed with which a LOC could be obtained would likely offset any financial gains that might be observed by re-issuing the bonds at a higher, but fixed, rate.
JDA members hope to have the LOC in place by September 1.