Miami-Dade County Commissioners are acting to convert auction-rate bonds and variable-rate debt supporting the county’s commercial paper programs.
The board late Tuesday unanimously approved taking action to convert $74.6 million of auction-rate bonds, some of which were recently remarketed at a rate of 11%, according to finance director Rachel Baum.
Baum said financial advisers are still trying to determine how to proceed by converting to a fixed rate, which would cost more than the bonds cost now, or purchasing a letter of credit that would cost between 50 basis points and 60 basis points.
The county also has about $560 million of variable-rate debt exposure through its commercial paper program with the Sunshine State Governmental Financing Commission. Although the paper is insured and there is a line of credit providing liquidity support, some of it has failed to sell and has been tendered to the bank at 6%, far above the rate prior to the credit crisis. Baum said adding liquidity would cost about 50 basis points, but the bonds would trade at lower rates.
Commissioner Carlos Gimenez called for a follow-up report about the county’s exposure, strategies to resolve the problems, and the costs. “I’m a little concerned about any impacts to the general fund,” he said.
Normally, Baum said she would bring individual transactions to the board for approval, but banks are only providing a one-week commitment to their costs for letters of credit.
“In this case, we’re in an emergency situation,” she said. “It’s costing us money by not acting. We’ve never been in this situation before.”
At their Feb. 21 meeting, commissioners approved converting $139.7 million of auction-rate aviation revenue refunding bonds to fixed rate.
Baum said Miami-Dade still has exposure to $415.2 million of Series 1994 variable-rate water and sewer debt that was swapped to a fixed rate of 5.28%. The bonds are insured by downgraded Financial Guaranty Insurance Co., so “the variable-rate component is not performing.” The county’s advisers are determining how to proceed on that deal and more information will be presented to the board at a future meeting, Baum said.
