Triple-A rated Columbus, Ohio, saved around $23 million over 20 years by issuing $192 million of Build America Bonds instead of traditional tax-exempt debt last November, the city’s longtime auditor estimated.
Net present savings totaled around $10.5 million, according to auditor Hugh Dorrian. The average life of the bond was 13.5 years, with a swath of the debt maturing in 20 years.
“The bottom line is that I am very, very happy with the experience,” he said. “The results were very pleasing.”
Columbus last November sold $191.5 million of taxable direct-subsidy Build America Bonds as well as $16.3 million of recovery zone economic development bonds.
Interest rates on the unlimited-tax BABs ranged from 2.26% on debt maturing in 2013 to 5.8% on debt maturing in 2028.
One aspect of the transaction surprised Dorrian — a yield-curve advantage over tax-exempt debt that began in the third year of maturities, which was several years earlier than expected.
“That’s what helped make the savings so great,” Dorrian said. “If we did the issue today, those savings likely wouldn’t kick in for the seventh, eighth, or nine year. We hit the market at the right time.”
The city opted not to include a make-whole feature in the offering, a provision intended to reassure buyers that their debt will be repaid in the event that the federal government changed or eliminated the program. “
“We put in a straight, traditional 10-year call at par, and I don’t believe it had any negative impact on us at all,” Dorrian said. “I think you’ll see more and more issuers doing that.”
Columbus expects to sell another bunch of BABs midway through the year, tentatively sized at around $400 million.
“It was a very positive experience,” Dorrian enthused, “and I look forward to doing more of it.”