By SUE SUCHYTA
Sunday Times Newspapers
ALLEN PARK – Finance Director Robert Cady recommended to the City Council Sept. 27 that part of $2 million from a Ford Motor Co. property sale be used to retire high interest rate bonds.
“The simplest way to look at this is you’ve got $2 million from the property that was sold to Ford, 13 acres, that we’ve set aside to buy back outstanding bonds and save the city money,” Cady said. “That was part of that premise from the beginning.”
Cady said the money from the land sale is earning less than 1 percent interest, while the city is paying 7.2 percent interest on the 2009A and B bonds.
“So you are getting rid of money that you are not earning a lot on and retiring bonds at 7.2 percent,” Cady said.
The city’s bond agent has received unsolicited offers to buy back bonds from brokers who missed the tender call earlier this year.
Cady said for every $100,000 used to buy back bonds the city saves $7,500 per year in interest until the bonds are called or mature in 2039.
By accepting the unsolicited tender offer the city would save $47,000 instead of waiting for the bonds to come to maturity in 2019. The current tender cost would be $474,750 (of the $2 million from the land sale). He said the process can be repeated when another unsolicited offer for the bonds arises.
“You’ve got $9 million out there in 2009 A and B bonds that obviously we want to try to set aside every penny we can so that when they are callable in 2019 we can do that,” Cady said. “Obviously one way to do it is similar to what we just did, squirrel away all we can for the debt retirement, and then go to a bank and borrow the remainder to get those 7.2 percent bonds off the street, assuming that the new bonds we would issue for the difference would be less than 7.2 percent.”
(Sue Suchyta can be reached at [email protected].)