Mt. Lebanon moves forward toward bond issue
Mt. Lebanon apparently is embarking on the process of issuing bonds at the right time.
“The market is fabulous. Interest rates have basically declined from the first of the year and have not stopped,” Michael McCaig of RBC Capital Markets told Mt. Lebanon commissioners at their June 11 discussion session. He said the effective interest rate stood below 2.5 percent that day.
During the regular meeting that followed, the commission voted unanimously to authorize municipal manager Keith McGill to retain RBC, a multinational investment bank based in Toronto, for underwriting services related to a bond issue. Retained for bond counsel services is Dickie, McCamey & Chilcote P.C. of Downtown Pittsburgh.
The intent is to borrow up to $5 million for capital projects that include improvements to Washington Road streetscape, Mt. Lebanon Public Library and the municipal recreation center.
Proceeds also would go toward refinancing bond issues from 2012 and 2014, resulting in net-present-value savings of about $100,000, minus the costs of issuance.
McCaig, who has provided services to Mt. Lebanon for previous bond issues, told commissioners he discussed refinancing options with municipal finance director Andrew McCreery two months ago.
“The savings divided by the amount of principal that we were refinancing was under 2 percent, which is the general benchmark of what you want to look for,” McCaig said. “Now, it is close to 3.5 percent. So that kind of gives you an idea where things have gone, even since April.”
Meanwhile, the interest rate on municipal bonds continues to drop, a situation he attributed in part to tariffs, a slowing economy and the Federal Reserve’s maintaining the prime rate at its current level.
“In addition to that, there has not been a lot of supply coming to the marketplace in the tax-exempt market, and there are a lot of bonds being redeemed,” he said. “So there’s a lot of demand, and there’s a lot of money going into tax-exempt bonds.”
According to McCaig, a new bond issue would result in about $3.24 million in debt service annually in 2020-24. After that, the amount Mt. Lebanon pays in principal and interest drops to about $3 million through 2029.
“We’re really looking at adding $150,000 in new expenditure and new debt,” McCreery said. “That’s just like adding a capital project for the next five years, and then doing the bulk of the repayment in those following five years to level out the debt so that there’s really no tax increase.”
The commission plans to vote July 9 on an ordinance to issue the bonds, and the sale will occur after Steve McLean, commission president, signs the appropriate documents.
“We’ll see when we feel is the best time to go out to market and get the best rate we can, with the information presented,” McCreery said.