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01/10/2023 10:10 AMMore than $8 million in one-year bond notes have been sold to help finance several town projects.
According to town officials, the $8.2 million in one-year bond anticipation notes were sold through a competitive bid process, and Jefferies, LLC, an investment banking firm, purchased them at an effective rate of 2.772 percent. In all, the town received six bids with rates ranging from 2.77 to 3.79 percent.
The notes are the first installment of a series of debt issuances planned to finance the new elementary school and community center (Academy) projects which voters passed in a February 2022 referendum.
According to the Town’s municipal advisor Munistat Services, Inc., Madison’s debt is attractive to municipal bond investors because of Madison’s superior bond rating and strong reputation in the market. First Selectwoman Peggy Lyons said that the sale of these notes is a significant phase in securing both short- and long-term funding for the upcoming projects.
“These are one-year notes, and eventually what we will do is sell bonds, which have a 20-year maturity that we’ll take to pay the one-year notes. What the one-year notes do is give us cash in the bank so we can start paying some of those construction costs,” said Lyons. “We are not building right now, but we need to pay advisors and consultants. There is quite a bit of activity leading up to the construction of the new school and the Academy projects. What this does is help us fund some of those operational expenses for those projects.”
Lyons added, that the town expects to secure longer-term financing as part of the overall funding as well.
“Eventually we will have to issue longer-term financing that would be permanently in place," Lyons said. "This is the first step, and we expect about a year from now [that] we would do another round of notes and then we may do a long-term bond. But we will figure that out over the next year depending on where we are in the projects.
Lyons added that the town is working with a bond advisor that projects cash flow to help determine what the current cash needs are to pay the town's financial obligations.
"We have these projection models and then they recommend what we need to raise through financing,” said Lyons.
According to Lyons, the rate at which the town issued these notes was beneficial for the town not only in securing this initial funding but critical to Madison’s ability to sell bonds at a later date.
“Obviously, rates have gone up quite a bit in the last two years and we were anticipating having to pay a higher rate. We were very excited to see the rate we got,” Lyons said. “The yield is effectively what we pay because people pay more than the face value of the bonds and that does lower the yield. So, I think the number to focus on is our yield, because that’s our effective cost of the issuance, and 2.7 percent is very good.”
Moody’s Investors Service affirmed the Town’s AAA long-term bond rating and applied its highest short-term rating, Moody’s Investment Grade 1, to the notes. In its rating report, Moody’s also described Madison as having “above average resident income and economic growth that is comparable to national performance” as well as “a strong financial position highlighted by solid fund balance and liquidity and low long-term liabilities and annual fixed costs” as key rating drivers.
According to Lyons, Moody’s rating is the industry benchmark for any municipality when it comes to borrowing funds.
“That 2.7 percent is better than we expected, and I think we had six or seven bidders, and the notes were gone in minutes. The Moody’s rating was excellent and we got a better rate because of the Moody rating because investors rely on their rating. We do save some money due to that rating,” Lyons said. “Our cost of borrowing goes down because of that rating. This is a great sign that the market likes our credit rating and likes our town. This shows there is a lot of confidence in Madison and it’s a good sign, especially because this is the first issuance since the referendums were passed by voters and so I think it’s a great thing that sets us up for financing for next year in a positive way.”