07/07/2014 – Sale of TANs

Sale of Tax Anticipation Notes (TANs)

Rationale
Approval of the resolution will allow for the issuance of Tax Anticipation Notes (TANs) to the winning bidder in order to fund general fund operations until ad valorem taxes are received.


Dr. Michael Bell (Chief Financial Officer)

Kathy Posey, Sr Managing Consultant with Public Financial Management, is the financial adviser for this transaction.  The board granted permission for a $36M dollar Tax Anticipation Note offering earlier this year.

The electronic bids were submitted.  The winning bidder was TD securities.

The net interest cost is .199272%.  That’s a 151 day note.  Last year was a $70M dollar note.  As our budget improves our need for TANs will shrink.  This will hopefully be our last year to need a TAN.

The note itself will be paid off on Dec 16th.  It will be paid at one time.

TD beat Morgan Stanley who bid .2299%.  JP Morgan submitted .244%.

The estimated issuance costs are expected to be less than $110K.  S&P gave us the highest rating possible.  Moody’s gave us a mid range rating which I believe is their highest rating for this type of transaction.

TD bid a purchase price of about $80K higher than the $36M.  The underwriting fee is minimal … 3 cents per bond.  A bond is a $1000 basis.  The underwriting fee will be around $1,030 at 3 cents a bond.  The closing date is 7/15.  The documents will be signed and the money wired.

We’ll use the $36M to get us through the low revenue part of the year.  We’ll never go absolutely negative this year.

Jim McMahan – What is the interest expense for those 150 days?

Bell – The interest expense … the terminology varies.  What we use here is Net Interest Cost (NIC).  The interest expense on this 151 day note is $30,090 dollars.  Then you would add to that the underwriter’s discount of $1,080 dollars.  Then you have the rating agency expense, FA fee, note/bond counsel fee, etc… that’s considered in the cost of issuance.