GRAND RAPIDS — Market conditions and cuts in the interest rate have prompted the Convention and Arena Authority to issue bonds for the construction of DeVos Place sooner than planned.
The 30-year bond package, worth about $88 million, will go to market before the year is over. The board initially planned to issue the bonds next spring, but members decided to move the package sooner in order to benefit from lower interest rates.
“It’s advantageous for us to issue the bonds as soon as possible,” said Daryl Delabbio, Kent County administrator and controller who also is a CAA staff member.
“The Fed has been lowering interest rates, and mortgage rates have gone down. It appears to be in our best interest to address the market now,” he added.
Delabbio told the Business Journal that the bonds will be issued this fall, and possibly at a rate lower than 5 percent. Lower interest rates, of course, means that the CAA will pay less in interest costs over the life of the bonds and the board wants to get the bonds to market before rates rise.
“We could save hundreds of thousands of dollars, if not more, on interest costs with each dip in the interest that we would pay,” he said.
The yield from the tax-exempt municipal bonds should give local buyers a solid return, as their purchases will be exempt from federal, state and city income taxes.
As for the package’s value, $86 million has been targeted for the construction of the $219.5 million convention center. Another $2 million has been earmarked to get the package to market through a negotiated sale, which will feature a pre-sale for local buyers.
“We requested when we selected an underwriter, which is UBS Paine Webber, that they make these bonds available locally, and part of that reason is there is a strong interest here because of the (tax) exemption and because this is, obviously, a popular project,” said Dick Wendt, a partner at Dickinson Wright and counsel for the CAA.
The Grand Rapids/Kent County Building Authority will be the issuer of record. The package will be backed financially by revenue from the county’s lodging excise tax. The county also will pledge its full faith and credit to the package, so the bonds are very likely to be rated triple A.
A market date and interest rate could be announced this week, as the CAA is scheduled to meet Wednesday morning.
“Before Sept. 11, we were looking at this because interest rates were dropping because the Fed had continued to drop interest rates this year in an effort to spur the economy,” said Delabbio. “Since Sept. 11, the rates have even dropped further. At one point we thought these wouldn’t go lower. But, in fact, these did.”