City of Oak Harbor gets money-saving deal on project bonds

Published 3:21 pm Friday, April 22, 2016

A strategy by the city of Oak Harbor’s top official paid off this week.

The city issued $25.7 million in municipal bonds to partially finance the new sewage treatment plant. The rest of the cost of the project — currently an estimated $115 million in total — will be borne by a combination of grants and low-interest loans from the state.

The good news, City Administrator Doug Merriman said, is that the city got the low-low interest rate of 3.43 percent on the bonds.

Merriman, formerly the city’s finance director, traveled to San Francisco earlier this year to meet with officials from Standard & Poors Rating Service and give a presentation about the city’s finances. Merriman said the S&P officials told him afterward that they appreciated him making the trip to be face-to-face.

Merriman said the questions that analysts asked were different in the past, when they were purely focused on the numbers. This time they asked about “more qualitative questions,” such as what the city’s management practices are, how financial decisions are made and how utility rates are set.

Apparently the analysts were pleased with the answers. The agency assigned an “A-plus” rating to the city’s bonds, which Merriman said is pretty good for a city its size.

Even better, the agency agreed with Merriman’s request that the city doesn’t have to include the 10 percent collateral when issuing bonds, which will save the city a lot of moolah.

The rating agency found that the outlook for the bonds is stable.

“The rating reflects our view of such factors as the city’s stable and diverse customer base, moderate rates, good projected coverage, and very strong liquidity,” agency credit analyst Aaron Lee said in a press release.

Merriman chose to issue the bonds through a competitive sale in which broker dealers and dealer banks can bid on the bonds.

Eight bids were received. Robert W. Baird & Co. offered the lowest bid at 3.43 percent.

The rate was significantly lower than the original estimate of 4.5 percent and will save the city about $6.7 million over the life of the bonds, Merriman said.

In addition to a favorable bond rating and the advantage of a competitive process, the city also had timing on its side.

“We’re seeing some of the the lowest bond rates in a long time,” he said.