OPPD delays bond issue; Lancaster County jail could be delayed
Omaha Public Power District has delayed a $105 million bond issue because the credit crisis has virtually frozen the municipal bond market.
Jeff Hanson, OPPD’s manager of public information and consumer relations, said Tuesday the utility intended to go to market with the bonds at the end of last month but pulled them because there were no buyers.
“It’s unprecedented,” Hanson said. “We’ve never pulled a bond issue before.”
The utility serves 340,000 customers in all or parts of 13 counties in eastern and Southeast Nebraska.
By contrast, Nebraska Public Power District went to market with $332 million in bonds Sept 8-9 and had no trouble finding buyers. NPPD’s bonds generally carry a slightly lower rating than those of OPPD.
NPPD, based in Columbus, got what it considered to be a good interest rate, said Mark Becker, an NPPD spokesman.
“Our timing was good,” Becker said.
A lot happened, though, between the beginning of September and the end of the month.
Mortgage giants Fannie Mae and Freddie Mac were taken over by the government. Investment bank Lehman Brothers went bankrupt and Insurer AIG had to be rescued by the government, which also approved $700 billion to take bad mortgage debt off banks’ hands.
Those events, combined with other financial woes, have led many large financial institutions to stop buying municipal bonds, which are ordinarily considered safe investments because governmental agencies rarely default.
Municipal bond sales had been averaging about $6 billion a week up until about two or three weeks ago.
Since then, the weekly average has been closer to $700 million, said Scott Keene, vice president and managing director of Ameritas Investment Corp. in Lincoln.
That has led to situations like OPPD’s or that of the state of Iowa, which last week postponed a $185 million bond issue that was to finance improvements to a veteran’s home and two prisons and the construction of a new state office building.
Keene said the only bond issues making it right now are smaller ones that attract individual investors.
“Individuals still seem to be buying through this market,” Keene said, “but the large institutional buyers are sitting on the sidelines.”
If they continue to sit on the sidelines, more state and local agencies could face problems financing projects.
Lancaster County is planning a new $65 million jail and is hoping to take the bonds to market in the next month or two.
“We are still in the document drafting mode for the Lancaster County issue, so it has not affected that issue yet,” said Keene, whose firm is working as underwriter on the bond, “but we will need to see some improvement in the market before we can issue the bonds as planned later in October or early in November.”
If conditions don’t improve, the Lancaster County Board could delay the issue, which could greatly delay the project, or go ahead to market, which likely would mean paying a higher interest rate that could cause the finance costs to balloon.
Kerry Eagan, the county’s chief administrative officer, said the board hasn’t had any discussions about bond market conditions, but plans to talk about the status of the bond issue at its weekly staff meeting Thursday.
Other municipalities also are facing uncertainty.
Buffalo County, Like Lancaster County, is planning a new jail and in March approved issuing $24.5 million in bonds for the project.
But last month, a representative from the county’s bond underwriter told the county board the bonds could not be issued under the current conditions, according to the Kearney Hub.
The underwriter’s representative, Tom Chapman of Raymond James and Associates, said he believed the government bailout would calm the municipal bond market down in a few weeks.
That would be good news for OPPD.
Hanson said the utility doesn’t need the bond money, which is intended for capital projects, right away, but he’s not sure how long it can wait.
Reach Matt Olberding at 473-2647 or molberding@journalstar.com.
Jeff Hanson, OPPD’s manager of public information and consumer relations, said Tuesday the utility intended to go to market with the bonds at the end of last month but pulled them because there were no buyers.
“It’s unprecedented,” Hanson said. “We’ve never pulled a bond issue before.”
The utility serves 340,000 customers in all or parts of 13 counties in eastern and Southeast Nebraska.
By contrast, Nebraska Public Power District went to market with $332 million in bonds Sept 8-9 and had no trouble finding buyers. NPPD’s bonds generally carry a slightly lower rating than those of OPPD.
NPPD, based in Columbus, got what it considered to be a good interest rate, said Mark Becker, an NPPD spokesman.
“Our timing was good,” Becker said.
A lot happened, though, between the beginning of September and the end of the month.
Mortgage giants Fannie Mae and Freddie Mac were taken over by the government. Investment bank Lehman Brothers went bankrupt and Insurer AIG had to be rescued by the government, which also approved $700 billion to take bad mortgage debt off banks’ hands.
Those events, combined with other financial woes, have led many large financial institutions to stop buying municipal bonds, which are ordinarily considered safe investments because governmental agencies rarely default.
Municipal bond sales had been averaging about $6 billion a week up until about two or three weeks ago.
Since then, the weekly average has been closer to $700 million, said Scott Keene, vice president and managing director of Ameritas Investment Corp. in Lincoln.
That has led to situations like OPPD’s or that of the state of Iowa, which last week postponed a $185 million bond issue that was to finance improvements to a veteran’s home and two prisons and the construction of a new state office building.
Keene said the only bond issues making it right now are smaller ones that attract individual investors.
“Individuals still seem to be buying through this market,” Keene said, “but the large institutional buyers are sitting on the sidelines.”
If they continue to sit on the sidelines, more state and local agencies could face problems financing projects.
Lancaster County is planning a new $65 million jail and is hoping to take the bonds to market in the next month or two.
“We are still in the document drafting mode for the Lancaster County issue, so it has not affected that issue yet,” said Keene, whose firm is working as underwriter on the bond, “but we will need to see some improvement in the market before we can issue the bonds as planned later in October or early in November.”
If conditions don’t improve, the Lancaster County Board could delay the issue, which could greatly delay the project, or go ahead to market, which likely would mean paying a higher interest rate that could cause the finance costs to balloon.
Kerry Eagan, the county’s chief administrative officer, said the board hasn’t had any discussions about bond market conditions, but plans to talk about the status of the bond issue at its weekly staff meeting Thursday.
Other municipalities also are facing uncertainty.
Buffalo County, Like Lancaster County, is planning a new jail and in March approved issuing $24.5 million in bonds for the project.
But last month, a representative from the county’s bond underwriter told the county board the bonds could not be issued under the current conditions, according to the Kearney Hub.
The underwriter’s representative, Tom Chapman of Raymond James and Associates, said he believed the government bailout would calm the municipal bond market down in a few weeks.
That would be good news for OPPD.
Hanson said the utility doesn’t need the bond money, which is intended for capital projects, right away, but he’s not sure how long it can wait.
Reach Matt Olberding at 473-2647 or molberding@journalstar.com.
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