County saves $4.4 million in sale of bonds Previously issued bonds refinanced

March 19, 1993|By James M. Coram | James M. Coram,Staff Writer

Howard County saved $4.4 million Wednesday by beating other municipalities into the bond market with a $192 million bond sale -- the largest in county history.

The savings were achieved by refinancing $138 million worth of previously issued bonds at historically low rates. The remaining $54 million sold will be used for new capital projects.

David A. Bernat, vice president for municipal markets at the Wall Street firm of Merrill Lynch, told the County Council yesterday that most of the savings would occur in 1994 and 1995.

The council met in a 28-minute legislative session yesterday afternoon to ratify Wednesday's sale. As in a 1991 county bond refinancing, the interest rate was negotiated rather than established through competitive bids.

The county will recoup $144,073 on metropolitan district bonds in 1993 and will save $564,603 in 1994 and $537,638 in 1995. There will be no 1993 savings on public improvement bonds, but the county will save $2.7 million on them in 1994 and $374,093 in 1995, Mr. Bernat told the council.

The county will achieve the savings without having to increase its debt service after 1995 above what it is paying now, he said. The sale also shortened the average life of the general obligation bonds to 9.8 years and reduced the term of the metropolitan district bonds to 10.2 years.

The bond sale was a success because the county reacted

promptly to capitalize on a drop in interest rates, Mr. Bernat said. The county structured, marketed and sold the entire issue "flawlessly and without delay" in only eight days, he said.

Had the county waited, it would have had to compete with New York City, which is expected to do a $1 billion to $1.5 billion bond refinancing next week, and other local governments, including Montgomery County, Mr. Bernat said.

"The more people who issue debt, the higher the rates. The buyers were there for Howard County because of its high quality credits," he said.

The county has a bond rating of AAA, which is the best available, from Fitch and a rating just below that from Standard & Poor's and Moody's. The three firms are Wall Street's leading bond rating houses.

The county "missed by a whisker" getting Standard & Poor's highest rating last week, Mr. Bernat said, adding that a buildup of the county's rainy day fund should assure a higher rating in the near future.

Mr. Bernat said there were three reasons why the county didn't get the highest rating when county officials met with Wall Street bond analysts in New York last week.

Most of the analysts are new and their instinct is to be cautious, he said. Also, he added, "the economy is in the tail end of a recession, and the rainy-day mechanism was not as high as the analysts would have liked."

Despite not getting everything they wanted, council members said they were happy with the sale.

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