The city of Hoover this past week took advantage of international uncertainty in the financial markets to obtain an unusually low interest rate on $69 million worth of debt issued to pay for a new sports complex, city officials said.
However, Great Britain’s June 23 vote to exit the European Union sent institutional investors scrambling to purchase extremely secure investments, according to a press release from the Hoover mayor’s office.
That meant the city was able to issue 20-year premium warrants at an interest rate of 2.566 percent, which city underwriters believe is one of the lowest interest rates for publicly issued bonds in the history of the state of Alabama, the press release said.
Because the warrants were issued at a premium, the city will get $80 million cash at closing but only have to pay back roughly $69 million in principal debt, Hoover Finance Director Robert Yeager said.
Because of the city’s strong AAA credit rating from Standard and Poor’s, the warrants sold quickly — in about four hours Tuesday, Yeager said.
The mayor’s office called it “truly a remarkable day as investors reaffirmed in a big way that they believe very strongly in the City of Hoover and its future!”
The city’s AAA credit rating is not only the highest in the industry but also extremely rare for a municipality in Alabama, the mayor’s office said.
“This extraordinary good rating is the result of sound management practices and wise spending which allow the city’s bonds to provide the safe haven investors are seeking in this turbulent financial market,” the mayor’s office said.
Hoover Council President Jack Wright said the city had a phenomenal investment team working the deal.
“We had the right people in the right place at the right time,” Wright said.
Yeager said the city should close on the warrant issue in about three weeks.
The city will make interest-only payments of $2.7 million a year on the new debt from 2017 to 2022, Yeager said. The city will start paying on the principal in 2023, and the payments will go up to about $6.5 million a year at that time, he said.
The debt was structured that way to keep the city’s overall annual debt payments at about $9.3 million a year until 2023, when the rest of the city’s debt expires, Yeager said. At that point, the overall debt payment will drop to $6.5 million a year, he said.
Hoover Executive Director Allen Pate has said the new 124-acre sports complex next to the Hoover Met is expected to cost about $76 million, but that amount could change as various construction contracts are awarded.
Any excess funds from the warrant issue can be used for other capital projects, such as road repaving, sidewalks or building maintenance, according to the mayor’s office.