LYNN — An improved credit rating outlook has allowed the city to refinance its bonds, which will result in a $753,903 savings over the 15-year borrowing period, according to Chief Financial Officer Michael Bertino.
The city received five competitive bids from bond underwriters on Jan. 22 for a $7.58 million, 15-year general obligation state qualified bond issue.
With an average net interest rate of 1.295 percent, the winning bidder was New York-based BNYMellon Capital Markets, according to an announcement from Mayor Thomas M. McGee’s office.
“With S&P Global Ratings changing the city’s outlook from neutral to positive, we have been able to secure competitive bids that will save the city $753,903 over the life of the bonds,” said McGee in a statement. “The bond rating agencies are recognizing the results of the progress we have made working together over the last two years.”
Borrowing at a 1.3 percent interest rate is “very favorable,” said Bertino, who added the bond proceeds will allow the city to refinance existing debts from July 2008 and April 2010.
It will also fund $2.5 million of heavy equipment for the Lynn Department of Public Works and the Lynn Fire Department, which is through a 10-year bond approved by the City Council in December.
“We did it to lower the city’s obligations,” said Bertino. “Whenever you refund bonds, it has to be in the city’s best interest. It has to save the city a certain amount of money. We replaced bonds (and) got a much better deal on the new ones.”
City Council President Darren Cyr said he was pleased with the savings achieved with the refinancing.
“I am hopeful that the city can now begin to move forward to replace its aging school buildings,” he said.
First on that list is Pickering Middle School. City officials have outlined a $100 million plan to replace the 103-year-old school, which would require a 30-year loan.
The School Committee is expected to vote Thursday to submit a statement of interest to the Massachusetts School Building Authority, a quasi-independent government authority that helps fund the construction of school buildings. If accepted into the program, the cost of the new school would be reimbursed up to 80 percent by the MSBA and the city would borrow the rest.
However, despite an improved outlook, which the S&P attributes to improved financial management over the past two years, the city’s bond rating remains low and unchanged at A-, according to a report from the credit agency.
The report notes that the city has issued deficit financing notes to stabilize its reserve and liquidity positions, but “it continues to face long-term challenges from its retirement liabilities and future capital needs, along with limited ability to generate new revenue or cut expenditures.”
Although S&P notes that the city has adequate management, strong debt and has been able to balance its fiscal year 2020 budget, the report said its budget flexibility is weak.
To fund $400-500 million worth of new capital projects, which will mainly consist of school infrastructure improvements, and balance its budget over the long-term, the city will depend on continued new economic growth, which could prove to be a gamble, according to the report.
“While we expect Lynn to maintain break-even operations in the near term, we believe it is unclear that it can maintain balance if new development were to stall in an economic contraction,” the report reads. “Particularly as it undertakes significant capital expenditures that it heretofore has not incorporated into its budget, we believe the city could fall out of balance over the longer term.”
Overall, S&P notes the city’s positive outlook could forecast a higher bond rating within the next two years. While the agency expects the city will continue to face revenue and expenditure pressure and rising retirement costs, improved financial practices and management could lead to an upgrade.
