Bond investors bullish on the valley’s economy
July 11, 2009
CARBONDALE – The people who rate and invest in local government bonds are bullish on the Roaring Fork Valley’s economy despite the recession.
The Roaring Fork Transportation Authority received a AA- rating on $27.5 million bonds it sold Thursday. That is a strong rating that was a four-notch upgrade from bonds sold by the agency in 2005, according to Dan O’Connell of RBC Capital Markets, an investment bank which helped RFTA market the bonds.
“With the economy as it is, it’s been difficult to sell bonds,” O’Connell said.
RFTA’s bonds were boosted because the agency’s revenues come from sales taxes collected in the towns throughout the Roaring Fork Valley, he said. The towns from Aspen to New Castle as well as Pitkin and Eagle counties collect sales taxes that are dedicated to RFTA. Investors and raters like to see revenues collected from multiple sources rather than just a handful, according to O’Connell.
The bonds will be repaid over 30 years through the sales and use tax revenues. RFTA’s sales tax revenues were down 24 percent through April from the prior year. Investors were well aware of the drop, O’Connell said, but it didn’t spook them off.
That reflects long-term confidence in the valley’s economy.
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Other entities that are trying to issue bonds aren’t faring as well. “It’s not as easy as it has been,” O’Connell said. Investment banks have traditionally been the principal buyers of municipal bonds. They have been hit hard by the recession, so they became picky about the bonds they bought. However, the market has “loosened up” since February, O’Connell said.
The bond rating system came under fire during the financial sector collapse last fall. Bond rating companies were accused of giving rubber stamps to issuers without truly studying their financial condition. O’Connell said it was his impression that the rating system is more conservative because of the scrutiny. In other words, RFTA earned its AA- rating.
The high rating is worth more than slaps on the back for RFTA employees. Valley taxpayers benefit because a higher rating translates into a lower interest rate.
The ballot question approved by voters last November said RFTA couldn’t issue the bonds unless its interest rate for repayment was 6 percent or less. RFTA officials were counting on a rate of about 5 percent. But the bond sale closed Thursday with an interest rate of 4.37 percent. That will decrease the interest and increase funds for a transit expansion by about $800,000, O’Connell said.
Part of RFTA’s transaction involved Build America bonds authorized by the federal government as part of the Obama administration’s stimulus package. RFTA is only the second entity in Colorado, along with the Denver Water Board, to take advantage of those bonds so far, O’Connell said.
RFTA will soon issue additional bonds. Voters gave permission to issue up to $44.55 million in bonds for an expansion called bus rapid transit. It will involve more buses on direct routes between Aspen and downvalley towns, nicer bus stops and additional parking lots. RFTA is also attempting to score a multi-million dollar federal grant to help pay for the expansion.