During volatile times, Marblehead AAA bond rating keeps borrowing costs down

Interest rates are rising in increments of 0.75 percent. The inflation rate is at 8.3 percent. Labor and supply chain issues persist.

It’s a volatile period to invest, yet these are also the times when municipalities with good bond ratings can save taxpayers money. The town’s AAA bond rating, the highest achievable, did just that when the Marblehead Select Board recently issued $12.3 million in bonds, representing a little more than half of the Proposition 2 1/2 debt-exclusion override that voters approved in June.

“The town approved a little over $24 million in capital projects [under Question 1],” said Michael Carriette, interim finance director and treasurer/collector. “Based on the timeline of capital projects, we went out to bid for $13 million.”

In volatile times, municipal bonds to fund capital projects can be a more stable (yet less lucrative) investment for people and banks, making communities with AAA bond ratings like Marblehead attractive to investors.

Marblehead’s bond rating was affirmed in Fiscal Year 2022 for the 12th consecutive year by the independent rating agency S&P Global Ratings, formerly known as Standard & Poor’s. The town is one of roughly 69 Massachusetts communities (out of 351 cities and towns) to be rated AAA.

The status signals to lending agencies that the town carries very little risk of defaulting on loans and meets its financial obligations when borrowing money. Marblehead leverages that status to obtain lower interest rates that emerge when banks compete to lend money to finance the town’s capital projects.

Hilltop Securities, whose financial services the town employed to facilitate the bond bidding and sale, received 12 bids total, which is more than they’ve seen all year, according to Carriette.

“They were happy with the amount [of bids] they got back,” he said.

Bidders’ responses to the town’s sale of bonds to finance capital projects.

Carrittee said bids were “extremely competitive,” with rates within a tenth to a hundredth of a point from each other.

“Which just shows consistency in the market,” he said. “They need the town’s bond issuance.”

Fidelity Capital Markets ended up with the lowest bid at a 3.30 percent true-interest rate.

“The total par value of the bond issuance is $12.3 million, which is less than the $13.4 million that we originally went for,” Carriette said. “And so this the reason we were issued with $12.3 million. The rest is premium that we won’t have to borrow.”

He added, “After paying delivery and vendor costs to our bond castle and Hilltop and various parties, the end result is the $12.3 million.”

Past competitive bond sales have yielded interest rates below 3 percent for Marblehead, depending on the bond’s length. The 20-year bonds released in September come with 5-percent interest rates for the first 13 years and 4 percent for the remaining seven years. While those are high compared to years past, Marblehead Select Board Chairman Moses Grader, the former chairman of the Mablehead Finance Committee, explained they are low in current market conditions.

A breakdown of Marblehead’s financing after a Sept. 1 bond issuance.

Grader said the town has two years’ worth of “shovel-ready” projects. The capital projects that the debt issuance will finance include:

  • Road and sidewalk repair program: $2,229,000
  • Police station roof replacement: $263,500
  • Jacobi Community Center roof replacement: $840,500
  • Tower Way, Department of Public Works and Water and Sewer Headquarters roof replacement: $1,153,525
  • Salt shed replacement: $899,500
  • Marblehead Public Schools SMART panels at Glover Elementary: $1,247,505
  • Marblehead High School and HVAC units on the Field House: $4,945,450
  • Replace D Wing roof at Veterans Middle School: $554,000
  • Marblehead High School boiler replacement: $200,000

Bonds covering the remaining balance of the $24.3 million can be issued in future years. Debt issuance is the linchpin in the town’s larger strategy to marry debt and available dollars from other sources, including Chapter 90 funds from the state, sales of lots in the town cemetery, revolving funds, fees and state grants, along with regular taxation, to finance capital projects.

The purpose, said Marblehead Finance Committee Chairman Alec Goolby, is to allow the town to address significant infrastructure, building and capital needs over the next five years, while spreading the debt out over that span.

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