Metuchen sold short-term bonds of about $2.4 million at a 1 percent interest rate in September for various projects, including major repairs to the borough sewer system.
The bonds were purchased at face value by Amboy Bank, a commercial bank, on Sept. 11, Borough Chief Financial Officer Rebecca Cuthbert reported. Cuthbert's report was reviewed at a Borough Council meeting in October.
Cuthbert did not respond to a request for comment. No one at Amboy Bank responded to a request for comment.
Metuchen issued the debt to fund sewer plant upgrades that became imperative after a near-catastrophic failing in a pump station, according to minutes from Council's June meeting. Read more here: http://www.gmnews.com/2016/07/29/metuchen-bond-ordinance/.
The bond ordinance Council approved in June slated funds for improvements to sewers, including the Jersey Avenue pump station; repairs to Oakland Park, including acquisition of a composite play structure; and the acquisitions of a street sweeper and a garbage truck. Funds were also pledged for reconstruction of Durham Avenue and curb and sidewalk repairs, the ordinance said.
The bonds are backed by the borough's tax revenues, according to the ordinance.
Metuchen has about $18.6 million of outstanding bonds (it's unclear if the recent float is part of that total). Interest on bond principal of $2,030,000 in 2016 was $580,678, or 13.76 percent of the current budget, according to the borough's budget report.
The direct purchase of bank-qualified bonds by commercial banks is attractive to localities – even for smaller bond issues in the $500,000-$2 million range. With this approach, an issuer directly places bonds with a bank. Professional fees, which can make smaller deals uneconomical, are substantially reduced because there is typically no placement agent, remarketing agent, letter of credit bank (and all their additional associated legal fees), rating, and possibly no trustee (or the bank that purchases the bonds will act as trustee and paying agent) as well on these transactions. Bond pricing may be higher, but the offset of the lower fees and costs can have a significant impact on the effective cost of borrowing for smaller deals.
Does debt ever go anywhere but up, like taxes? Current year debt in the 2016 budget report: $2,610,678.00. Prior year debt: $2,113,300.00.
Metuchen has a Moody's rating of Aa2, which means the borough's credit is rated as high quality, low-risk to pay back short term debt.