Higher interest rate delays floating of $60-M bond

Higher interest rates that prevail in the mainland United States economy is delaying the CNMI government’s flotation of the $60 million municipal bond, which will be used to match available federal funds for several infrastructure projects in the Northern Marianas.

The Commonwealth Development Authority earlier expressed optimism the bond will be sold in the U.S. market towards the end of last month but underwriters decided to hold back in anticipation of lower interest rates next month.

CDA Board Chair John S. Tenorio said the government-controlled lending agency has originally stretched the expected time-frame for the flotation of the municipal bond up until the eighth month of the year, when interest rates are traditionally lower.

Mr. Tenorio said CDA and its mainland U.S.-based underwriters remain in schedule with regards to selling the bond into the open market, adding that all documents have already been processed for its smooth flotation.

CDA has been hard-pressed to double its efforts in getting a good deal for the $60 million bond amid the Commonwealth’s stagnant economy that is expected to recover at a turtle’s pace due to the continuing financial upheavals in the mainland Asia.

The CNMI government is hoping to float the bond sooner with hopes of hastening pending major infrastructure projects and increase business activities on the islands.

In a previous interview, Executive Director Marylou S. Ada said CDA’s bond underwriters in the mainland United States are already in the process of obtaining the needed rating before the bond is floated in the open market.

CDA is hoping to receive a word from the underwriters in the next couple of weeks in order to finally sell the $60-million bond in the open market by next month, according to Mr. Tenorio.

The municipal bond has been in the offing since last year but was not immediately floated due to economic difficulties and higher prevailing interest rates, resulting to the dragging completion of major infrastructure projects in the Northern Marianas.

Mr. Tenorio said interest rates normally increase by 30 basis points or by one percent during the March-May period, adding that floating the $60 million bond when interest rates are lower would be beneficial to the Commonwealth’s depleting coffers.

According to Mr. Tenorio, interest rates normally stabilize beginning June or July which, he stressed, makes August the most appropriate time to sell the tax-exempt municipal bond.

The bond is being eyed for use to match available federal funds under the Section 702 of the Covenant, which guarantees U.S. funding for Capital Improvement Projects that can be tapped only if the CNMI identified local matching money.

The CNMI gets $11 million annually for CIPs. The $60 million bond has been identified to declog the bottleneck of unused CIP funds that has been accumulated by the CNMI.

In order to fortify the salability of the bond in the open market, Mr. Tenorio said government finance managers have started looking at the stability of the Commonwealth’s fiscal house, particularly its ability to generate enough revenue and its capacity to reduce outstanding budget deficit.

Paine Webber, which handled the $16 million bond floated by the Public School System last year, will also handle the flotation of the $60 million municipal bond.

Half of the total $60 million bond proceeds will be used to pay the $30 million borrowed by the CNMI government from the Bank of Guam.
The interim financing was decided by the CDA board to nourish the economy with infrastructure projects identified in the 702 CIP Master Plan.