HomeMy WebLinkAboutA021 - Email from Finance datedd September 17, 2008 - Manager AlertDuane RPbchor/COA To SteveSohoinker/COA@C0A
00/19/200812:07PM co Bob KindredKCOA@COA.Carol BCoUingsKCOA@COA.
Diane R Voms/COA@COA. Ro0erVVimeoup/COA@CUA.
Sheila KLundt/C0A@C0A.Sue Rybo|t/CDA@COA
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Subject Upcoming Bond Sale - Follow-upE I
Steve.
Follow-up onBond Sale.
Rating: Moody's rated the upcoming issue as AAA and confirmed the rating on outstanding debt.
Sale Risk: All regional firms that normally bid on our bonds have expressed an intent to bid on the
upcoming issue, we are likely to see fewer bids from national firms but there appears to be plenty of
interest in our bonds.
Interest Rate Risk: Spreads to treasuries remain wider than usual but spreads are better for higher
quality rated bonds. PFK8reportedthatKanoasChyhaspuUadosa|eof"A'nstedbondepardybeceuse
the combination of wider spreads and low earnings rate on escrow have pushed the refi portion of issue
out ofthe money.
Some better news than two days ago though markets are still volatile |doexpect our sale k/gmhappen es
planned.
Duane Pitcher, CPA.CPFD
Director ofFinance
City ofAmes
515Clark Avenue
P.O.Box O11
Ames, Iowa 50010
Phone (515)239'G114
Duane RPdnher/COA
Duane RPkchor/COA
gi~� 08/17/20080529PM To SteveSchainker/CDA@COA
co Roger VViueuup/CDA@COA.Sue Rybo|t/COA@COA.Carol
�^ BCoUinge/CDA�DC0A.Sheila KLund�COA4�COA.Bob
'' Kindmd/COA@COA.Diane RVoss/C0A@COA
Subject ManagerA|ert-UpoomingBondSa|e
Steve,
With all the turmoil in the financial markets, I spoke to our bond financial advisor to discuss possible the
impact and options for the City of Ames G.O. Bond sale coming up on Tuesday, September 23. As you
have heard there has been considerable uncertainty in both the credit and equity markets in the past few
days, there have also been liquidity problems with some ofthe types financial institutions that bid onour
G.O.Bonds (benka.investment houses, insurance oompanies). When this all settles out the end result
mhou|dboposihvefmrtheCityofAmeeeinoea|ike|y'f|ighttoque|ity''wiUbenefittopuaied.|owrisk
investments such aoour AAA rated G.().bonds. Additionally, credit enhancement insurance has become
virtually impossible to obtain so the only AAA rated debt instruments coming to market will be from issuers
that can rate aAAA without credit enhancement. | held our rating conference call onTuesday and fully
anticipate that we will maintain our AAA rating.
| believe that wehave two primary risks with the upcoming issue:
1. Sale Risk - With all the market uncertainty there is a possibility that investors will not be willing to take
onnew issue securities and wewill have few, ornobidders for our bonds.
I have asked our Financial Advisor PFM to check with underwriters that regularly bid on our
bonds to get feel ofintent to bid on our upcoming issue. If we find that there is little or not interest in
bidding on the bond sale, we should consider pulling the sale rather than having it fail. VVewould then
reschedule the sale inthe near future after getting input from underwriters. PFK8will get back 1omeby
Thursday afternoon orFriday &K4.
2. Interest Rate Risk - Interest rates are up m|ighUy, but the risk for Ames is that the yield spreads
between treasuries and other securities have widened, possibly driving up the interest rate we will need to
pay tVget our bonds sold.
I don't think that this will be a problem with a AAA rating G.O. sale, but we always have the option
to reject all bids and schedule for o later date.
I don't want to sound to alarming, and I anticipate that our sale will go as planned with possibly a few less
bidders and at favorable interest rates, but I wanted to let you know that the there is a new level risk and
that wehave options available 1orespond.
Duane
Duane Pitcher, CPA, CPFO
Director ofFinance
City cfAmes
515Clark Avenue
P.(}.Box O11
Ames, Iowa 50010
Phone (515)23S-5114