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Archive for July 8th, 2009|Daily archive page

Say it ain’t so: City sees bond rating drop from top Aaa; but these are revenue bonds, not GO bonds

In City Hall on July 8, 2009 at 4:13 pm

For more than 30 years, the city of Cedar Rapids has secured the top Aaa bond rating as it has sold bonds to raise money to pay for capital improvement projects.

On Wednesday, though, the city reported that Moody’s Investors Service has given the city of Cedar Rapids a lower bond rating — a rating of Aa3 — as the city prepares to sell $7.9 million in sewer revenue bonds and $8.6 million in water revenue bonds.

At last night’s City Council meeting, though, City Manager Jim Prosser emphasized that revenue bonds are different from general obligation bonds, and he was quick to note that the city retains its Aaa bond rating on the latter.

General obligation bonds, which the city uses for most of its capital improvement projects, have behind them the full assets and taxing authority of the city.

On the other hand, revenue bonds, which the city has typically not used, are backed only by the revenue from user fees raised by a particular entity, the city’s Water Department, for instance. Thus, revenue bonds can present a larger risk to investors.

Jon Burmeister, managing director for PFM Group of Des Moines, told the City Council last night that only 11 cities in the nation had better bond ratings on revenue bonds than Cedar Rapids’ new rating of Aa3.

A lower bond rating typically means that a jurisdiction pays higher interest rates and interest cost on the debt it is assuming as it sells bonds.

Nonetheless, Burmeister called Aa3 rating “still an elite category” of bond ratings. The Aa3 rating is three steps below Aaa in Moody’s 20-step rating system which goes from Aaa to Ca.

Moody’s said the Aa3 for the city’s revenue bonds “reflects the essential nature of the services provided, the utilities’ sizable and stable service area which serves as an economic center in Eastern Iowa, satisfactory legal protections, healthy net working capital, and projected adequate coverage rates, balanced against a likely increasing debt ratio and notable customer concentration.”

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Ninety-unit Cedar Pond Townhomes development gets $15.3 million in federal tax credits; construction should start by Oct. 15

In City Hall on July 8, 2009 at 1:47 pm

If all goes as planned, a Minnesota developer will begin construction in mid-October on the 90-unit Cedar Pond Townhomes development on 11.2 acres south of Williams Boulevard and north of Wilson Avenue SW.

The developer, EverGreen Real Estate Development, Prior Lake, Minn., on Wednesday was awarded $15.3 million in federal affordable-housing tax credits by the Iowa Finance Authority to help fund the project.

Greg McClenahan, president of EverGreen, said the firm’s plan was to start construction by Oct. 15 and be complete in a year.

The city’s Replacement Housing Task Force and the City Council, on a 6-2 vote in late March, backed the project over some objections from neighbors.

“It’s been a long process,” McClenahan said Wednesday afternoon. “I feel gratified that the city has been a big supporter of the project.”

Cedar Pond will feature 48 two-bedroom units and 42 three-bedroom ones with one of the units for an on-site manager.

The units are targeted to households who earn 60 percent or less of the area’s median family incomes.

McClenahan has other rental complexes in Iowa. A University of Iowa graduate, he was at the University of Iowa this week going through freshman orientation with his son.