City re­ceives lower in­ter­est rate on $12.75M loan

The Times-Tribune - - Briefly - STAFF WRITER BY JIM LOCKWOOD

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: jlock­wood@timessham­rock.com, @jlock­woodTT on Twit­ter

BUL­ZONI Busi­ness ad­min­is­tra­tor said lower in­ter­est rate stems from good credit rat­ing for 2017 tax an­tic­i­pa­tion note

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