CDA on right track in $60-M bond

The Commonwealth Development Authority and its mainland United States-based underwriters are on the right track in delaying the flotation of the $60 million municipal bond in anticipation of the seasonal drop in interest rates.

Rep. William S. Torres expressed confidence CDA and its underwriters in San Francisco will be able to strike the best deal for the Commonwealth once the tax-free municipal bond is finally floated.

“It’s just a matter of proper timing but I am sure it’s moving on the right direction. They are just waiting for the interest rates to fall because that would be more beneficial for the Northern Marianas,” said Mr. Torres.

He cited an incident when the Government of Guam issued a $50-million bond. Once floated, the interest rate significantly dropped. “We are learning from that experience so we are a little more cautious now.”

Mr. Torres added that the delay would have a very nominal effect on the $30-million loaned out of Bank of Guam, citing the advantages deal given by the financial institution to the CNMI government when the loan agreement was signed.

“The effect could be very nominal because Bank of Guam has made a special deal for the government. They are not being taxed for the interest income,” he explained.

Higher interest rates that prevail in the mainland U.S. 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.

CDA earlier expressed optimism the bond will be sold in the U.S. market by middle of the year but underwriters decided to hold back in anticipation of lower interest rates in the next few weeks.

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 this month, 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.

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

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.