Opinions 

4/1/2003

Insurance higher than expected

By Kendra E. Fish
The Daily Times-Call

LONGMONT — The St. Vrain Valley School District may receive bond insurance from MBIA Insurance Inc. at twice the cost it expected to pay.

On Thursday, MBIA said it would insure the $96.2 million portion for 40 basis points, which could add an additional $630,000 on to the costs associated with issuing the bonds.

“This is kind of high, but I felt like it was good news,” said Roger Driver, the district’s financial consultant.

The district secured bond insurance for 10.7 basis points the last time it issued bonds.

“I was shocked when I heard that number,” said school board Vice President Rick Samson. “We didn’t have any information to anticipate our estimates would double. That’s a lot of money”

On Wednesday, the school board approved costs associated with the bond contingent on the rates set by MBIA on Thursday. On Friday, the board was notified of the cost.

According to Samson, the board has not met to discuss the 40 basis points but will more than likely accept the terms.

School districts purchase bond insurance to receive the highest “AAA” bond rating. This rating helps lower the interest rates attached to the bonds.

One basis point is one-tenth of 1 percent of the bond principal and interest rates. Interest rates will not be determined until the bonds are sold April 8 and 9.

According to estimates made by Alex Brown, the district’s investment banker, interest costs could add $60.8 million to the $96.2 million principal.

If this happens, MBIA would be paid about $628,000.

In original estimates, Brown estimated 20 basis points for a cost of about $315,000.

According to Stephen Clark, the district’s recently hired independent financial advisor, the bonds will be sold to investors at a slight premium in order to pay for the insurance and other costs associated with issuing the bonds.

“Given what has happened with the district, I am not at all unhappy with (the 40 basis points),” Clark said, referring to the multimillion-dollar deficit the district revealed it was facing in November.

 

 
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