Second round of bonds auction successful for Lehigh project
A successful online auction for a second round of bonds was held to help finance the Lehigh Elementary School project.
Northampton Area School District Board of Education voted 8-0, with one school director absent, to adopt a resolution “authorizing the issuance of General Obligation Bonds, Series of 2019, in the aggregate principal amount of $9,640,000 for the purpose of funding a portion of the Lehigh Elementary School project and other capital projects and the costs of issuing the bonds pursuant to the Local Government Unit Debt Act of 1996.”
The school board voted on the resolution following a presentation during the Jan. 14 meeting by Jamie Doyle, managing director at PFM Financial Advisors LLC, district financial consulting firm.
The auction, held noon Jan. 14, drew 24 bids from four financial firms, Doyle told school directors and administrators. The winning bid had an interest rate of 3.84 percent from Janney Montgomery Scott LLC.
“There was a lot of good competition,” Doyle reported of the auction, noting there were four activations of the two-minute rule. The two-minute rule states that if any bid becomes the leading bid within two minutes of the end of the auction, the auction will be extended another two minutes. This continues until the leading bid remains in the lead for at least two minutes.
NASD is financing the $35,788,356 new Lehigh Elementary project at 800 Blue Mountain Drive, Walnutport, Lehigh Township, through a series of general obligation bonds.
The first bonds, Series of 2018, for $9,980,000, were issued in May 2018 for the new school. Settlement of the second issuance of bonds is to be Feb. 20.
Attorney Kevin C. Reid, of King, Spry, Herman, Freund & Faul LLC and bonds legal consultant for the district, briefed the school board on the bonds issuance.
“That will be part of your debt portfolio. You’re well within your limits,” Reid said.
Doyle said it will cost the district $1,088,000 less in interest over the life of the bonds.
The impact on district taxes will also be lower, 0.05 mill.
“The yield curve continues to flatten out,” Doyle said. “Interest rates have continued to go down, one-half percent since Nov. 1.
“There continues to be pent-up demand,” Doyle said of the bonds offering. “They are looking for good bonds.”
She attributed this to the volatility of the stock market.
“We were very pleased with the competitive bidding auction and results, and we recommend that you accept it,” Doyle said before the school board vote.
Doyle made the initial presentation for the second round of bonds auction at the Nov. 19, 2018, school board meeting.
Henry Guarriello, senior project manager at D’Huy Engineering, engineering firm for the Lehigh Elementary project, and a representative for KCBA, architecture firm for the project, are expected to make a presentation on the Lehigh school project at the next board meeting, to be held 6:30 p.m. Jan. 28 in the administration building, 2014 Laubach Ave., Northampton.
The preliminary-final land development plan for the Lehigh school project was approved Jan. 8 at a meeting of Lehigh Township Board of Supervisors, following recommended conditional approval at the Dec. 10, 2018, meeting of Lehigh Township Planning Commission.
Drawings for firms planning to bid on the school project will be available Feb. 1. A pre-bid meeting is scheduled for 4 p.m. Feb. 12 at the current Lehigh Elementary School.
Bids are to be opened March 12.
Information for prospective bidders is available on the KCBA website, kcba-architects.com.
The Internet bonds auction required NASD to purchase $35,000 in bonds insurance. For most previous online bond auctions, NASD wasn’t required to have insurance. This time, AGM Insurance won the bid to provide the insurance. AGM provides financial guaranty insurance for municipal bonds.
The insurance requirement was despite the district’s Aa3 rating by Moody’s Investors Service.
According to the Moody’s website, “Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.” The modifier 3 “indicates a ranking in the lower end of that generic category.” Obligations rated Aaa “are judged to be of the highest quality, subject to the lowest level of credit risk.”
Moody’s changed the status of NASD to “negative outcome.”
“They’re concerned that you’re drawing on reserves. Most school districts are doing that,” Doyle explained.
NASD Business Administrator Terry A. Leh said he spoke with Moody’s officials about the concern.
“We tapped into the fund balance to keep our tax rate down and pay bills,” NASD Superintendent of Schools Joseph S. Kovalchik said.
“We’ve never paid insurance (for bonds issuance) since I’ve been on the board,” school Director Dr. Michael Baird said.
School board President David Gogel said the district had paid insurance at some point in the past.
“[Moody’s] would prefer that you not dip into the fund balance at all,” Doyle said. “It’s a warning [Moody’s] (is) going to watch what’s happening over the next year.”
School Director Robert Mentzell asked if the bond rating could be lowered again.
Leh said Moody’s talked about that topic with him.
“Even though you’re paying $35,000, on the flip side, you are making out for the taxpayer because we didn’t go into the index,” Kovalchik said.
Baird said with any school district projects in the future, it would be best to not look at the fund balance.
“[Moody’s] looks at trends. They would like you to use zero (from the fund balance),” Doyle added.