City receives lower interest rate on $12.75M loan
Scranton received a lowerthan-usual interest rate on a short-term $12.75 million loan obtained Monday, city Business Administrator David Bulzoni said.
Bonds issued by the city to fund the tax anticipation note for 2017 had an interest rate of 2.5 percent, or nearly half the percentage interest rate paid by the city for a similar loan a year ago, he said. The city secured a lower interest rate, despite the Federal Reserve’s recent rate hike, he added.
The lower interest rate partly stems from the city last week receiving a good grade from a credit ratings firm for the 2017 TAN, he said.
Standard & Poor’s rating of the tax anticipation note for 2017 as “SP2,” an investment-grade rating, represented an improvement in such ratings for the city and its recovery efforts, Mr. Bulzoni said.
Credit ratings impact how much interest a municipality pays when it borrows money. A higher credit rating reflects financial stability and translates into lower interest rates.
A lower credit rating — or worse, none at all — reflects distress or uncertainty and translates into higher interest rates.
The city lost an investmentgrade rating several years ago, during a time of worsening fiscal distress, and that led to high interest rates on borrowing.
Improvement came gradually. In June, Standard & Poor’s rated a city bond issuance as “BB,” a relatively middling or low grade, two notches below the start of investment-grade ratings, but better than not having any credit rating.
The 2017 tax anticipation note also was “oversubscribed,” meaning it generated strong interest from investors, he said. Those included two who each wanted to buy all of the bonds and a third who wanted to purchase $2 million of the total, Mr. Bulzoni said.
“So, we split it, to sell components to each of them,” he said.
“We’re very pleased. It certainly is a very measurable reduction from this year’s TAN,” Mr. Bulzoni said. “Any time you can reduce the interest rate, it lowers your debt cost.” Contact the writer: email@example.com, @jlockwoodTT on Twitter