Buckhead cityhood effort doesn’t seem to cause hike in Atlanta’s borrowing costs

By David Pendered

Atlanta borrowed nearly $200 million last week with no apparent adverse effect from the Buckhead City movement.

Investors do not appear to have charged higher interest rates for Atlanta’s bonds, despite the potential deannexation of the Buckhead area and loss of its significant base of property taxes. The bonds sold within 24 hours and are to close Thursday.

Atlanta is scheduled to pay lower rates than another Sunbelt government with a top-tier credit rating, which sold bonds at the same time as Atlanta: Bexar County, Texas, home of San Antonio.

Atlanta’s interest rates may be the result of the city’s legislative effort to assure investors they will be repaid regardless of a Buckhead deannexation. The Atlanta City Council approved a paper on Dec. 15 that requires Buckhead to repay its share of the debt, in one lump sum, a year after deannexation.

Atlanta’s maneuver comports with language that could be viewed as guidance from Wall Street credit analysts. In a May 14, 2018 analysis of the proposed city of Eagle’s Landing, which involved a deannexation from the City of Stockbridge, Moody’s Investors Service noted a credit concern involving Stockbridge’s reduced property tax base and “no provisions to reapportion outstanding debt.” Atlanta provides such provisions in the paper approved by the City Council that demonstrates to investors the security for the loan if Buckhead deannexes.

Investors’ primary concern is repayment of a loan with earnings that were agreed upon, according to Roger Murray, a bond and underwriter’s counsel who’s represented the government and investor sides of deals for 32 years, according to his resume at Murray Barnes Finister. The investors’ interests are sometimes not fully represented in issues involving government boundaries, he said.

”To a certain extent, [investors] get lost in the discussion,” Murray said at the Sept. 16 meeting of the House Study Committee on Annexation and Cityhood. “They certainly got lost in Eagles Landing.”

Last week, Atlanta borrowed about $188 million by selling bonds, according to a tabulation of amounts issued. Atlanta is slated to pay interest rates ranging from a low of 0.509 percent, for bonds that mature Dec. 1, 2022, to a high of 2.388 percent, for bonds to be paid off in 2034, according to information provided by an affiliate of the Municipal Securities Rulemaking Board.

Bexar County borrowed about $411 million, according to a tabulation of the amounts issued. They are slated to pay interest rates ranging from 0.651 percent for bonds that mature June 15, 2023 to 2.621 percent for bonds that mature June 15, 2037, according to the affiliate’s report.

The interest rates cited for both governments are coupon rates. These are annual interest rates due from the borrower to the lender, as expressed by a percentage of the sum borrowed.

Rates for longer terms tend to be higher than rates for shorter-term borrowing, in part because investors charge more as compensation for committing cash for longer periods of time.

A side-by-side comparison of the bond issuances isn’t appropriate. No issuers and no deals are alike. However, the two governments share similarities.

Both are at the top-tier of credit ratings issued by Moody’s Investors Service. Bexar County is at the very top of the scale for its planned sale, while Atlanta is one step lower in the credit ratings for its package. In addition, both governments are the center of burgeoning metroplexes in the South. Both are competing for high-tech jobs.

Moody’s issued its rating action on Atlanta on Nov. 29.

At this time, analysts would have been aware of Atlanta’s plan to recover money from Buckhead if voters choose to deannex from the city.

The legislation had been introduced at the Nov. 15 meeting of the Atlanta City Council, according to the paper. Under the normal course of action cited in the paper, it was to be considered Dec. 1 by the council’s Finance/Executive Committee and, if passed, would have been on the City Council’s Dec. 6 agenda. The council voted Dec. 1 to defer the matter to Dec. 15 and voted that day to pass the paper.

Moody’s analysts noted, in elaborating on the stable outlook for Atlanta’s ability to repay the debt: “The stable outlook reflects the expectation that the city’s tax base and economy will continue to experience growth given increases in labor force and large-scale redevelopment projects”

Citing factors that could lead to a downgrade of the credit rating, analysts noted: “Future tax base declines or deterioration of socioeconomic factors.”