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This page contains a single entry from the blog posted on October 3, 2007 11:51 AM. The previous post in this blog was Mimes on the tram?. The next post in this blog is County reportedly starts internal fraud hotline. Many more can be found on the main index page or by looking through the archives.

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Wednesday, October 3, 2007

Cha ching

The City of Portland held its auction for its latest $11.4 million or so in bonds yesterday. The money will be used to set up a new city archives in a building at Portland State. According to the official auction site, the winner was Bank of America, who agreed to buy the bonds (i.e., lend the money to the city, in this case over 20 years) at 4.27 percent interest. B of A apparently has specified that the city must buy bond insurance through an insurance outfit known as MBIA.

The total interest cost will be $6,196,598.41. Not to mention whatever the bond insurance premium will be, plus another nice fee for the city's outside bond lawyers. Making those fancy archives an ever-more-expensive proposition.

Comments (6)

according to the merc Sten wants to spend another 30m of tax money on a homeless shelter in old town. Jack, do you know were this money is allocated from?

It would be interesting to know what the interest rate would've been without the insurance. Interest rate is an indicator of how financially risky an organization, such as the city, is for debt repayment. I guess it would be interesting to see exactly what the insurance premium is as another indicator of how insurers rate the city's debt level relative to taxing power. Portland: "The city deep in hawk".

Do you know if the city still has its much-vaunted AAA bond rating?

what the interest rate would've been without the insurance

It's odd -- there was at least one other bid that apparently did not specify the insurance, with a similar interest rate, and yet B of A was declared the "winner." Moody's rated these bonds Aa1 on Sep. 27 -- no mention of the insurance in the writeup.

Of course, bond ratings rate only whether the bondholders will get repaid -- NOT what kind of city it will be to live in when all available funds are being used to pay debt.

To answer the question from Ambrose Moody's highest rating is AAA. It's second highest rating is AA1, which is what Portland has. The ratings for investment grade municiple bonds are in order:

AAA, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2,
and Baa3.

Personally I like the idea of a City having a BAAAAAA rating. Sounds sort of sheep like.

Greg C

Thank you for the information, Mr. Greg C.




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