Newtown’s Latest Bond Offering Trumps AAA-Rated Wilton

By John Voket

Just a few days after Newtown was awarded a bond rating increase from Standard & Poor’s to AA+, Finance Director Robert Tait participated in a bond offering that achieved a lower interest rate than a similar offering completed by AAA-rated Wilton just a few days ago. This week’s bond transaction resulted in a borrowing rate of 3.149 percent, compared to a similar transaction by Wilton last week which fetched a 3.4 percent rate.

The finance director traveled Wednesday to the Hartford offices of Webster Bank with the town’s bond counsel to consult on both the long-term bond offering, and a package of short-term Bond Anticipation Notes or BANs.

That short-term offering also resulted in an interest rate that was comparable to a similar offering made by AAA-rated Greenwich about a week ago, according to a Webster Bank bond consultant who was involved with both Greenwich and Wilton’s issues. The $20 million in BANs for Newtown fetched a rate of 0.32 percent, while last week’s transaction by Greenwich officials received a 0.29 percent rate.

Following last week’s announcement that Newtown had shed its long-time AA2 bond rating from Moody’s Investor’s Service for a AA+ rating from competing Standard & Poor’s, Barry Bernabe, the town’s bond consultant at Webster Bank ,explained how that action could positively influence interest rates for capital borrowing.

“The rating upgrade [from AA2] to AA+ is worth about 20 basis points or 0.20 percent” Mr Bernabe wrote in an email to the finance director. “So [theoretically] instead if issuing at 3.75 percent you could get to 3.55 percent.”

Mr Bernabe correlated that savings on the proposed $14.32 million bond issue to be about $250,000. “And the town will save money for every future bond issue in the future assuming you keep the AA+ rating,” he added. “You will likely save another $50,000 of interest on the $20 million BAN issue.”

At the same time, S&P also rated Newtown’s BANs SP-1+, which is the highest rating possible for the short-term notes.

In a memo from Mr Bernabe following the rating upgrade from Standard & Poor’s, he also related recommendations, which, if followed, could position Newtown for a AAA rating — the equivalent of a perfect credit score.

According to S&P’s report to the town following their upgrade, “the possibility of achieving a AAA bond rating in the future” will be based on the following:

*continued strong and disciplined budgeting practices

*weaning off of the use of budgeting fund balance

*growth in fund balance reserve as a [percentage] of the budget; this means that if the budget grows then fund balance should grow

*return of a more “normal” (1.5 percent–2.5 percent) annual growth in the grand list

In regard to the latest bond and BAN savings, finance board Chair John Kortze said the interest rates that rival or beat two of Fairfield County’s long-standing AAA-rated communities is testament to how the front line investors view Newtown and the financial practices it has been following or instituting in recent years.

“Those bond and BAN ratings are a direct reflection of how the market views Newtown’s financial soundness,” Mr Kortze said.