Portland Pulls ARS Refunding

Portland has shelved plans to refinance $150 million of auction-rate securities after four months of failed auctions yielded lower rates than it could get if it refinanced the pension revenue bonds at a fixed rate.

The 1999 Series D and E revenue bonds have suffered failed auctions since February, said debt manager Eric H. Johansen. The penalty rate is set by formula at 150% of the seven-day double-A composite commercial paper rate.

The formula has yielded rates ranging from as much as 4.5% in February to as little as 2.9% in recent weeks. Johansen estimated that the city would have to pay higher rates if it took out the ARS with fixed-rate bonds.

“We’re inclined to refinance at some point, but not at any rate,” he said, adding that officials remain comfortable with having some variable-rate debt in Portland’s portfolio of obligations.

The ARS were issued as part of a $300 million pension deal the city sold in 1999. It issued half of the bonds with a fixed rate and half as ARS in weekly mode.

Portland, which has a Aaa general obligation rating from Moody’s Investors Service, does plan to bring three deals to market over the next two months, Johansen said.

The city will issue $40 million of tax increment finance bonds for its South Park Blocks Urban Renewal and Redevelopment Area in June. The new-money deal is being underwritten by Citi and Banc of America Securities. Officials are considering adding a $27 million refunding portion to the deal.

Portland also plans to refinance $17.5 million of limited-tax revenue bonds via competitive sale on June 10. It will return to market with another competitive sale of $85 million of new-money water system revenue bonds in July.

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