BREA : $100-Million Bond Issue OKd by Council

Taking advantage of current low-interest rates, the City Council this week approved a $100-million bond issue that will be used partly to pay off debts from bonds issued in 1991.

Acting as the Redevelopment Agency and the Brea Public Financing Authority, the council unanimously approved the sale Tuesday, although insurance for the bonds--considered critical to ensure a high rating--has not yet been secured.

Finance Director Larry Hurst said that an application has been sent to the Municipal Bonds Insurance Assn., which insures bond offerings, and a decision is expected in about two weeks.

“If MBIA commits to insure the bond issue, it will get an automatic Triple A rating,” Hurst said.

Bonds with high ratings are easier to sell in the bond market, Hurst said.

The bond issue will cost the city about $2 million, Hurst said.

This includes $1.5 million for Stone & Youngberg, the bond underwriters.

He said the company was chosen by competitive bidding and through interviews when the city issued the 1991 bonds.

The bonds will be paid over a 30-year period from so-called tax increments from Redevelopment Agency projects, such as the Brea Mall and Brea Marketplace.

Tax increments represent increases in property values after development.

Hurst said the bond issue is like a homeowner refinancing his property to take advantage of prevailing low-interest rates.

He said the new bonds will have the same maturity as the 1991 bonds but will carry lower debt service, or the annual payment on the principal and interest of the bonds.

Under the agreement with Stone and Youngberg, interest rates for the new bonds would not be more than 6.5% per year, Hurst said.

In 1991, the city approved a $152-million bond sale to refinance bonds originally issued in 1985.

Because interest rates at that time were lower than six years before, the city saved $6 million in interest payments, Hurst said.

The Redevelopment Agency got $50 million for housing and other development projects, he said.

Under state law, bonds may be refinanced two times, Hurst said.

He said the conditions are better than in 1991.

But he said it would be hard to determine exactly how much the city will save because the bond market changes every day.

“Timing is very important,” he said. “Rates are near the lowest point in 20 years, but because of the sagging economy, the market rallies and falls with every bit of information, whether it’s good or bad.”