“The debt-limit debate is hitting close to home this week as Affton School District officials worry that a crisis in Congress may hurt a planned bond issue.
At a special meeting Tuesday night, the Affton School Board approved a resolution authorizing a new bond sale for the district, scheduled for Aug. 4.
“The purpose is to refinance the 2004 bonds and to capture some of the savings to support your efforts in the building of an early childhood center,” said Carl Ramey, a representative from the district’s issuing bank—Stifel, Nicolaus—who answered board questions at the meeting.
However, the timing—just days after the looming Aug. 2 deadline for Congress to raise the debt limit—has school officials anxious.
“We are very nervous,” Affton School Board President Michael McNeil told Patch. “Who knows what is going to happen?”
If Congress, currently locked in a turbulent political showdown, fails to authorize the treasury to borrow more money, the government would be unable to pay its bills and could default on its debt. Politicians and economists warn that this would cause a never-before-seen economic crisis that could roil the world’s stock and bond markets.
The school district’s bond issuance, in the planning for several months, will involve refinancing the roughly $8-million debt the district took out in 2004 with newly available lower interest rates. The district plans to issue approximately $12 million in bonds: $8 million to pay off the existing debt and an additional $4 million for the construction of the planned early childhood education center and for other facility improvements.
Because of the lower interest rates on the new bonds, the district’s annual debt service payments will remain steady at $1.1 million.
But school officials worry that possible market volatility following an untended debt D-day may negatively affect their bond sales.
School officials also worry the bonds’ credit rating may be affected if Standard & Poor’s downgrades the U.S. government’s AAA credit score, as the credit rating agency warned was possible July 14.
At the moment the district’s 2011 bonds have an S&P rating of A+. The district overall has a AA rating, which Ramey told the board was “very good for a school district, very good for school districts in this region.”
Ramey added that the score reflects the quality and good financial health of the district.
But McNeil worried that the school district’s rating, and therefore interest rates, may be harmed if a drop in the federal credit score cascades down to smaller governing bodies.
St. Louis County faces similar difficulties as it approaches an otherwise routine borrowing move on Aug. 9, according to a report in the St. Louis Post-Dispatch.
Also present at the meeting were Sean Flynn and Erick Creach, representatives of the district’s consulting law firm, Gilmore & Bell.”
Printed in the Affton-Shrewsbury Patch on July 27, 2011
Article by Andrew Dana Hudson