Ellis County raised more than $5.4 million in the bond market Aug. 10 to pay for a slate of planned road and bridge projects.
"We had a great sale today," said Larry Kleeman, attorney with Ranson Financial Group LLC, the county’s financial advisor, reporting on the bond issuance deal. "That’s the bottom line."
"Good job," said County Commissioner Dean Haselhorst, upon hearing the news during the county commission’s regular meeting last Monday at the Ellis County Administrative Center, 718 Main.
Commission Chair Butch Schlyer and Commissioner Dustin Roths echoed Haselhorst.
Fourteen bidders signed up, and 10 submitted bids, Kleeman said.
Successful underwriter was Country Club Bank, Kansas City, Kan., which gave the county interest rates effectively below 1% on 10 maturities.
"Aug. 26 is the date of closing," Kleeman told the commissioners.
"That’s when Country Club will wire-in the funds to the county’s bank account," he said, "and you’ll have the new bonds outstanding at the new low interest rate."
The county will pay off the bonds over the course of 10 years from the proceeds of a countywide quarter-cent sales tax that voters approved in April.
The sales tax goes into effect Oct. 1 at cash registers in Ellis County.
The tax is collected by the state, then returned with a bit of a lag back to the county and it’s cities.
"Typically we’d be happy with four or five bids, but the bond market’s crazy right now," Kleeman told the commissioners in reporting on the sale.
"Rates are really low," he said. "People are hungry for a safe investment. So underwriters are willing to step up and bid and buy bonds wherever they want, because they have other people, moms and pops, and other banks willing to buy them."
The underwriter buys them from the issuer, in this case Ellis County, then resells them at a little higher premium, say 1%, to banks and other investors, he said, then pays the premium back.
0.64% interest rate
Ellis County’s total interest cost is $309,461, Kleeman said.
The 10 bidders, most of them from out of state, offered interest rates ranging up to .96%.
As premium bonds, Country Club gives the county more than $132,000 in premium, ultimately paying Ellis County roughly $5.5 million, he said.
"Once you do the math, that equates to a average interest rate of not 1%, but actually 0.64%," Kleeman said. "So it’s a really good deal that you’re getting there."
The $65,000 cost of issuance to the county includes: the underwriter’s profit, $26,000; $15,450 for Ranson; $26,000 for bond counsel; $16,500 to the rating agency; and about $8,000 in miscellaneous fees.
About $5.36 million will go into the project fund, he said.
The county had planned to issue $5.4 million in bonds, but with the low interest rate, and the premium, they were able to lower the issue to $5.325 million, Kleeman explained, "because you only needed $5.3 million for your project."
"You’ll actually get about $5.4 million for this bond that you’ll end up paying back in the amount of $5.3 million," he said. "That’s how they bring in extra money that you can utilize, and it lowers the effective interest rate.
Strong credit rating
Ellis County went to the bond market with a AA- credit rating from one of the three main U.S. credit rating firms, S&P Global Ratings.
"That’s what you had on a previous bond issue many years ago, so it shows you’re staying stable," Kleeman said. "That is a really good rating. Ratings go from AAA, AA, single A, and even below a single A … AA- is certainly a great rating, and it showed with the 10 bids you got today, and the low interest rates. And it’s a perfect time to sell bonds, with the interest-rate environment right now."
The bonds are roughly $515,000 to $590,000 each, and maturity dates range from Sept. 1, 2021 to Sept. 1, 2030.
The goal was to keep debt service under $600,000 a year, Kleeman reported, and in actuality it worked out to a payment of about $563,989 the first year, gradually lowering each year to $560,550 by year 10.
"So you’ll have extra money left over that you hadn’t planned on," he said.