News Column

AAA Marblehead pays micro-interest rate

August 4, 2014

By Alan Burke, The Salem News, Beverly, Mass.



Aug. 04--MARBLEHEAD -- Imagine you had a spare $15 million to lend for a year. How much do you think you could score for handing out such a sum? Enough to spend the year on the beach at Maui?

Well, hold the pineapples, because if you lent it to the town of Marblehead, you'd be hard-pressed to have enough to live on for 12 months. And that's good news for Marblehead.

Thanks to its AAA bond rating, Marblehead recently borrowed more than $15 million for costs associated with construction of Glover School by contracting with low bidder TD Securities at the extraordinarily low interest rate of .011659 percent.

That means, according to the town's finance director John McGinn, the loan will cost the town roughly $18,300. After the year is up, state subsidies will kick in, allowing the town to repay the loan.

McGinn couldn't recall getting a lower rate.

For long-term 20-year and five-year loans of more than $8 million, the lowest of seven bids came from Bank of America Merrill Lynch at 2.8 percent.

"I don't think we could do much better," he told the selectmen. The 20-year loans cover the costs of the downtown drainage project, the Glover School and the restoration of the Abbot Hall tower. The five-year loan covers work making the Old Town House compliant with the Americans with Disabilities Act.

It's the sixth year running that the town's bond rating has been judged AAA, the highest level, by Standard & Poor's.

"This is the good side of the interest rates," McGinn said. The negative side would be for any investments the town might have.

Ironically, McGinn acknowledged that someone isn't satisfied with the town's finances. An external auditor, Powers and Sullivan, has urged the town to adopt a written investment policy, which selectmen did last week.

McGinn summarized his policy directing the town's finances as a conservative one, dependent on a diversity in investments. "We do things that are safe," he said.

Asked why anyone would lend $15 million and get so little in return, McGinn smiled. "You'll have to ask Janet Yellen at the Fed," he said.

Alan Burke can be reached at aburke@salemnews.com.

___

(c)2014 The Salem News (Beverly, Mass.)

Visit The Salem News (Beverly, Mass.) at www.salemnews.com

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Source: Salem News (MA)


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