By Lou Ortiz
Miami-Dade County debt service on $136 million in bonds will go from 3% to 6% or higher after credit worries in the auction-rate securities market last week led to failing confidence by investors.
The interest hike on the Aviation Department bonds will increase repayment by millions.
"The auction-rate market is in shambles," Assistant County Attorney Gerald Heffernan told commissioners on Feb. 21, who took his advice and voted to convert the bonds to a fixed-rate.
But the problem may not end there. "We have four bond [issues] in the auction-rate market."
The market auctions municipal and corporate bonds and preferred stocks. Interest rates are set every seven, 14, 28 or 35 days, by short-term investors who bid and buy the bonds.
Municipalities are attracted to the market by interest rates often lower than fixed-rate borrowing.
But the credit crunch has hit the market. Among those failing to attract investors at auction were issuers of student loans and a $100 million debt by the Port Authority of New York and New Jersey.
Miami-Dade issued the bonds in May 2003 at 3% interest. Debt service this year through 2010 was estimated at $6.8 million annually.
Debt service was estimated at over $13 million a year, at no more than 4.88% interest, with payments totaling $98.3 million, from 2011 until the bonds are paid in 2025, documents show.
The bonds financed construction of 2.5 million square feet of cargo space and new aircraft aprons at Miami International Airport.
Mr. Heffernan said last week that Lehman Brothers had bought the bonds at 3% and was holding them temporarily.
Rachel E. Baum, county finance director, said refinancing could cost 6% or "it could be as high as 13%."