Debt Issuance

Issuing debt is not an exact science. It requires experience in the marketplace and close personal attention to your financial needs.

Liberty designs custom strategies that:

  • Mitigate tax increases
  • Stabilize and improve credit ratings
  • Improve sales results
  • Time the market

Tax Impact Mitigation

At Liberty, we realize that municipal finance is all about delivering services at the lowest cost to taxpayers. Debt issuance is simply a means to that end. We continue to devise financial techniques for our clients that reduce annual debt payments and don’t strain budgets. For example, one methodology we have in place reduces the spike in debt payments often associated when an issuer rolls bond anticipation notes into bonds.

Credit Ratings

Taxpayers recognize that credit ratings are an unbiased measure of your finances. Solid credit ratings also lead to lower borrowing costs. Rating agencies recognize that finances are not always constant. At Liberty, we instruct clients on how to manage their credit ratings. We alert them to the key data points which drive ratings and avail them of our proprietary benchmark model, so that they may more easily monitor their credit rating financial profile.

Sale Results

Our experience in the marketplace and our proactive work ethic drives us to help generate bond sales. Even though state and local finance law dictates a municipaly’s issuance of bonds with pro-forma structures, each and every serial bond we sell is structured to take advantage of opportunities in the market, meet budget constraints and garner offers from underwriters. We at Liberty know, for example, that during turbulent economic times, purchasers of bonds prefer to limit the term of their investments, so we either recommend bond structures with terms of 10 years or less, or that our clients borrow for the short-term, remaining in annually renewable notes until markets stabilize and long-term rates become more favorable. Our approach to bond sales also means calling on prospective underwriters or bond insurers to generate sale participation.

Time the Market

Market timing is a key consideration when implementing a borrowing program. While it is impossible to consistently predict the best times during any given calendar year to issue bonds,  we regularly review interest rate patterns based on the 10-year Aaa/AAA yield, so that we can engage our clients in a meaningful conversation. Historically we have observed that there are several different months during the year when on the average, interest rates trend at or lower than the annual average interest rate level. For example, during those years when the annual average interest rate may have been 4%, looking back, on the average, during these months we have observed rates either at or below 4% and assist our clients in targeting those months for their debt issuance.

The following case studies show how Liberty has helped clients with debt issuance, under various circumstances. Note: Under varying market conditions such savings may not be available.

CASE STUDY 1: Junk status avoided – $1.5 million in estimated interest cost savings.

ISSUE SIZE: $22,085,000
TERM: 20 Years
NET INTEREST RATE: 4.95%
SUMMARY: In conjunction with our ongoing monitoring of credit markets and issuers, we alerted this issuer of its risk of being downgraded to “junk” status, although they were not a client at the time. They engaged us and we quickly completed a formal credit review and ratings action plan. Two months later, as predicted, this issuer was placed on “watch list” for a possible credit rating downgrade. Having a plan in place helped prevent this issuer from being downgraded and allowed it to successfully sell a much necessary $22 million bond issue at a better interest rate.

CASE STUDY 2: Avoidance of 3% Tax Rate Increase

ISSUE SIZE: $1,345,950
TERM: 10 Years
NET INTEREST RATE: 3.08%
SUMMARY: This issuer was confronting strict budget constraints for its upcoming fiscal year. As a portion of the proceeds from its bonds were to be used to redeem several outstanding bond anticipation notes, a budget “stressing” principal pay-down would have been required. Conducting a lengthy analysis permitted under local finance law, we helped to decrease the required payment, thus reducing the required tax rate increase to fund the principal pay-down to .93% from 4.16% for this client.

CASE STUDY 3: Improved number of underwriting offers

ISSUE SIZE: $7,770,000
TERM: 14 Years
NET INTEREST RATE: 3.35%
SUMMARY: This issuer had been using another financial advisor for many years and regularly received three to four offers on its bonds at sale time. We attained seven offers on this issuer’s bonds from underwriters.

CASE STUDY 4: Tax Neutral Capital Programs

ISSUE SIZE: $2,725,000
TERM: 20 Years
NET INTEREST RATE: 4.01%
SUMMARY: Due to a relatively steep yield curve at the time of issuance, the phasing of bond projects into two financings and a budget objective of tax-neutral financing, we conducted an analysis for this client evaluating the benefits of 20-year bonds versus 15-year bonds. Based on our analysis, we saw an opportunity for an entire tax-neutral capital spending program, consisting of bonding and “pay-as-you-go” financing. Public meetings for this bond resolution were well attended. Based on the thorough program and the public presentation, voter approval for the bond resolution was achieved.


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