City wrestles with bond financing options

With the completion of several road projects recently, the Sidney City Council turned its attention to long term financing at its regular meeting this week, and found its options somewhat limited.

Over time, the city will need to obtain bonds for up to around $14 million, and council members wrestled not only with the size of the bonding – which is much larger than previous needs – but also concern over whether or not it can get a favorable bond rating, and the lower interest rates that such a rating can give.

The city’s immediate need to cover outstanding warrants is about $6 million, which is slightly larger than the $3 to $5 million it has normally sought in the past. Additional future obligations will boost needs considerably.

But it isn’t the amount of the obligations causing concern over financing. Rather, it is Sidney’s overall situation that causes concern for bond underwriters.

“Because of how unsettled things are, we may have to enter a higher risk market,” City Manager Ed Sadler told council members.

Sadler explained that Sidney’s previous bond underwriter, Ameritas, remains skeptical in its confidence rating due to uncertainty over Sidney’s largest employer, Cabela’s. In visits with the city, Ameritas indicated Sidney might not be able to get a more desirable rating on its bonds. If the city could achieve a higher “AA” rating, it would result in greater savings.

But at this time the city, which Sadler said has not pursued a rating “for some time,” may not be able to obtain a “AA” rating. Sadler told council he thinks the city might be able to get an “A” rating, which would still be better than seeking non-rated bonds.

The city had sought underwriting services from a number of service providers, but in the end Sadler brought only one proposal, from Robert W. Baird & Co., to council for its consideration. Ameritus had not submitted a proposal, although a representative appeared before council, asking for time to bring one back at council’s next meeting.

Sadler said to date he hadn’t seen anything he liked so far from Ameritus, and said he had already delayed bringing proposals before council by a month. As a result, he recommended moving forward with the Baird proposal.

In its discussion, council recognized the need to accomplish the bonding process for two obligations, totaling $6,070,000, which come due in December. With that in mind, council members agreed further delay would not be wise, and voted unanimously to accept the Baird proposal to meet the city’s immediate needs. After that, the city will seek additional proposals for remaining obligations.

Baird’s estimated fee (base on a $14 million obligation) is 0.972 percent for a non-rated bond, and 0.517 percent if an “AA” bond could be obtained.

As part of the process, the city will seek a rating assessment, which will indicate if the city can achieve a preferred rating. From there, the city can, if it chooses, move forward with rated bonds if the results are favorable.

In the meantime, Sadler told council members work is in progress to enhance the city’s rating. That includes management of finances, obligations and cash reserves to reduce city exposure.

“Those aren’t all in place right now,” Sadler said. “But in a year it would look better.”

After those adjustments are made, Sadler said the city’s position in the bond market should be stronger.