Pittsburg continues with bond restructuring

Oakland Tribune, Oct 6, 2008 by Paul Burgarino

By Paul Burgarino

Staff Writer

Pittsburg leaders continued to take steps to manage increasing interest rates caused by volatilty on Wall Street, moving to refund a set of its variable-rate funds with fixed-rate bonds.

Last week's bankruptcy filing by Lehman Brothers, the sale of Merrill Lynch to Bank of America and the $85 billion bailout of AIG and the resultant failure of the credit market increased Pittsburg's interest rate to 12 percent on the variable-rate bonds. The spike raised the city's interest costs about $150,000 per week, according to a city staff report.

"This is an example of how these national decisions impact what we do in Pittsburg," Councilman Michael Kee said.

As a result, the Pittsburg City Council -- acting as the Redevelopment Agency -- voted to put an amount not to exceed $9 million toward refunding its 2006 Series A Tax Allocation Bonds and clean up a $3.6 million loss that is expected from the recently- passed state budget. The plan requires restructuring $6.175 million of the agency's Series 1999 and Series 2003A Tax Allocation Bonds.

The Redevelopment Agency will have to look at trimming its current project limit by $2 million at a future meeting, according to staff.

If successful, the 2006 bonds would be limited to exposure to the credit market and the 1999 and 2003 bonds payments would be reduced by about $2 million per year, city officials said.

Earlier this year, Pittsburg leaders approved spending an additional $1.6 million in the next 18 months to get a new letter of credit with State Street Bank for its tax allocation bond and issuing 2008 Water Revenue Refunding Bonds at an increased cost of $1.9 million during the bond's three-year life. The moves are an attempt to save as much tax increment as possible, city officials said.

In January, Pittsburg's municipal bond insurer's rating was downgraded, raising bond interest rates from about 2 percent to almost 6 percent. As a result, city finance staff and a team of hired consultants have been working dilligently to bring interest rates back down, Finance Director Marie Simons said.

Monday's decision gives City Manager Marc Grisham the power to complete the transaction as market conditions permit.

Reach Paul Burgarino at 925-779-7164 or pburgarino@bayareanewsgroup.com