Miami to hold back after failing to sell series of bonds; County stays course to issue bonds at end of year
By Yudislaidy Fernandez and Risa Polansky
A failed attempt to sell a series of bonds and the uncertainty of an ailing financial market could impact some of the City of Miami's planned capital improvements and public works projects, possibly forcing delays.
In Miami-Dade County, officials are moving forward with plans to issue new bonds late this year and early next, and they don't expect to postpone or cancel projects because of tightening credit markets.
But as the national credit crunch continues to play out — manifesting in different forms on almost a day-to-day basis — near-frozen credit markets and soaring interest rates are making it difficult to sell bonds, impacting some government projects.
The city's underwriter attempted to refinance $29 million of 2008 pension refunding bonds last month, but couldn't sell them, said S. Pete Chircut, Miami's treasurer. He said the city has decided to sit and wait for the market to stabilize.
Of the street bonds approved in 2007 for street and sidewalk improvements, about $80 million were issued and another $80 million await issuance. But he said that won't happen until "sometime next year."
Earlier this year, City Manager Pete Hernandez said the street bonds could also be used toward the city's share of infrastructure costs at the planned new Florida Marlins ballpark.
For now, the city has decided to hold off on the pension and street bond series while it waits for the credit market to reach a stable condition.
A second shot at selling the bonds is planned for next year, when "hopefully it (the market) will be more favorable," Mr. Chircut said.
Miami's bonds currently have an A2 rating from Moody's Investors Service and the general obligation bonds an A+ rating from Standard & Poor's.
Mr. Chircut said the city is not expected to receive any new money from its bonds until the first quarter of 2009.
But if by then the market hasn't recuperated, he said the city could get less bond-backed money and have to delay some capital improvement and public works projects.
"But we are hopeful that by then the market could stabilize," he said.
The pension bonds the city couldn't sell, which are held by Wachovia Bank, are taxable bonds. This means the city pays the interest on the bonds and the bondholders the federal taxes, Mr. Chircut said. He said all other bonds have a fixed rate and are tax-exempt.
The city's current outstanding debt, including the principal on all its bonds, loans and notes, is about $440 million, he said.
Bonds' interest rates, which vary month-to-month, began increasing in May, so the city is paying an interest rate of 6% to 10% monthly, he said.
Meanwhile, Miami-Dade County's plans for bond issuances late this year and early next remain in place.
These include a $325 million general obligation bond sale set for year's end and a $600 million aviation bonds issuance intended for first quarter 2009.
"It's still on our schedule," county Finance Director Rachel Baum said. "I think it's too early to say at this point if the credit situation is going to continue as it is today. We're expecting and we're hoping there's going to be a correction."
Because the bond sale is to happen as planned, no capital improvement projects set to be backed by the money are expected to be postponed or canceled because of the credit crisis, department spokesman Paula Musto said.
"We're going ahead with plans that there will be the next bond sale at the end of the year."
She noted, though, that market conditions are ever-changing — "It's so dynamic."
Because of the unstable situation, the county is reworking its plan for refunding a nearly $300 million water and sewer variable-rate bond issued in 2005, Ms. Baum said.
No projects are to be affected because the money has already been spent, but "based on what's going on in the market, we probably will have to refund it with a fixed rate."
In general, the county has been working steadily to adapt to the shaky conditions both in the bonds it is issuing and the investments that it is making.
"We are not investing as much in commercial paper products as what we used to so that now more of our investments are in government agencies and treasuries," Ms. Baum said. "We have some commercial paper, but we're going to let that mature, and we'll probably stay away from [more of] that for the time being."
Meanwhile, the county's Budget and Finance Committee is to vote next week whether to authorize issuing up to $400 million in water and sewer commercial paper notes and up to $800 million in water and sewer revenue bonds in one or more series.
"This is an authorization only," Ms. Baum said. "The plan is to implement the program later next year."
Should commissioners authorize making the issuances in the future, many steps remain to move forward, she added, such as issuing a request for proposals to select dealers and liquidity providers.
The commercial paper program is to support water and sewer projects.
"The program is needed when there is a large construction program which is contemplated to begin in the next couple of years," Ms. Baum said.
County Manager George Burgess wrote in a memo to commissioners that the commercial paper program "enables the county to have immediate access to construction funds at short-term interest rates, which are usually less costly than long-term rates."
Interest rates on some of the county's outstanding bonds have skyrocketed, and some bonds have failed to be remarketed altogether, according to a report to commissioners from Ms. Baum.
Three weeks ago, the interest rate on $800,000 in outstanding series 1990 capital asset acquisition bonds was 1.88%. As of Oct. 1, it was 7.5%, according to the report.
Also, a $45.6 million Public Health Trust loan meant to be closed before last fiscal year ended this month has been postponed until the market settles.
Still, about 96% of the county's bonds were issued at fixed rates "and are not impacted by the current market," Manager Burgess wrote in a memo accompanying Ms. Baum's report.
Despite the national crisis, Ms. Baum said, "right now we're still in decent shape."