|JCPRD Achieves AA- Bond Rating, Sets Nationwide First|
The Johnson County Park and Recreation District recently received a higher-than-expected bond rating which set a nationwide first for park and recreation agencies and qualified the agency for lower interest rates and other financial benefits.
In preparing to go to bid for the $14.2 million in bonds to fund District capital improvement projects for 2003, the bond issue unexpectedly received a AA- rating from Fitch Ratings, one of three national credit rating firms.
"Because this will be an annual appropriation and involves the purchase of parkland, we assumed it would be rated in the A category and we were pleasantly shocked and surprised when it received an AA- underlying rating," said District Financial Advisor Marty Nohe of Kirkpatrick Pettis.
"It's exciting, this really is big," added District Director Michael Meadors. "We've been recognized as the first park and recreation agency in the country to receive a highly-rated annually-appropriated lease-purchase bond issue for parkland."
According to a news release from Fitch Ratings (accessible at www.fitchratings.com), "the underlying AA- rating reflects sound legal provisions, a strong incentive and intent from the District and County to make annual lease appropriations and above average general credit characteristics, which include a growing and diverse tax base, high wealth levels, a low debt burden and balanced financial operations."
Meadors said that prior to receiving the bond rating, he and Finance Manager Greg Reinert recently spent most of an afternoon answering questions from Fitch Ratings analysts relating to the District's financial health.
The most precedent-setting aspect of the rating, Nohe said, is that this is the first time both insurance and credit rating firms have viewed the acquisition of parkland as "an essential governmental service."
On a practical level, the higher rating will have both immediate and long-term benefits for the District, officials said.
"The net effect is more spendable dollars for park and recreation projects," Meadors said.
Normally on bond issues, the District is required to set aside 10 percent of the total issue as a reserve in order to meet bond payments in contingency situations. Because of the higher rating, the District was also able to qualify for surety bond insurance which will meet this requirement without having to set aside the entire amount. On the current bond issue, this will mean an additional $1.2 million will be available for projects, Nohe said.
The financial advisor said the AA- rating also sets the stage for lower interest rates. After a bid for the current bond issue from Prudential Securities was unanimously accepted during the District Board's Nov. 20 meeting, Nohe said the blended or average interest rate over the 20-year life of the bond will be 4.38 percent. He told Board members this rate was "extraordinary" and estimated the lower interest rate would result in a savings of $500,000.
Officials agreed that the better rating should help with future bonds as well.
"It kind of serves as a marker," Meadors said. "Usually once you have that rating and you have met certain financial tests, you maintain that rating. Something drastic has to occur for you to lose that."
The District is expected to close on the current bonds on or about Dec. 11, at which time it can begin expending the funds for 2003 projects.
While the higher rating is good news and will help the District in continuing implementation of its 20 year Master Action Plan (MAP 2020), it was noted that debt financing for this purpose is at best a short-term solution.
"This is a temporary fix for our long-term strategic needs," said Community Relations Manager Randy Knight. "We still need to secure a dedicated funding source to realize the collective vision of MAP 2020."