03/10/2008 Meeting Minutes - Laserfiche WebLink

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Special Council Meeting 3-10-08 Page 8 notice at the CUSIPS listed on the second page of the handout provided to Council. The municipal bonds represented by those CUSIPS now have an effective rating of the Village's rating which is A1. Consequently when people go to sell that, they are going to get a lower price for those. Mr. Brett stated that the only time this would impact us is if we decided to refund the bonds or to purchase some of our own bonds for whatever reason. We may not be allowed to do that, but if we elected to refund our bonds when we are able to call in those windows, that would be the only time that would impact us, we may actually be paying less for our bonds than what we would had the insurer not gone out of business because since we are buying it, the persons selling it are selling something of lesser value. Mr. Brett stated if we refund, we are essentially buying our stock back. If we buy our municipal bonds back, they are not going to be worth as much, although again we might need to do that on the secondary market as opposed to exercising the refund because the refund might have a premium built in to it. Dr. Parker asked about future bonds. Mr. Brett replied there are a couple of things going on in that respect. The one thing is municipalities throughout the country are pretty much fed . up with playing the red haired stepchild to business corporations. While this is all going on, MBIA which is the largest bond insurer still maintains a AAA rating even though Mr. Brett won't touch their stock with a 10 foot pole. But on a regular basis we get credit ratings that are significantly below comparable companies in the private sector. Some municipalities, in California in particular, are saying, this is enough you are costing taxpayers money because you have two sets of standards, one for a private sector and one for a public sector. Again, this does not effect the creditworthiness of our bonds, it just effects the insurance and the only thing Mr. Brett can analogize it to is if someone told you that you carry Progressive, Progressive stock has gone down, therefore the value of your car has gone down. It does not make sense. Mr. Brett can see where you might have to pay extra interest if you owe the bank money on the car but the actual value of the car does not decrease. Our bonds are still based upon our financial situation not our insurers. Mr. Marquardt stated if you sell new bonds you are driving the rate up. Mr. Brett said if we sell new bonds, we won't be using XL Capital Assurance, Inc. as an insurer. We would be going to essentially the free market. If there is not significant insurers out there willing to take the risk we would go at A1 which is what we are doing now anyway. Dr. Parker asked if potentially we have someone that will insure us at AAA, you would have a higher level. Mr. Brett said that if Warren Buffet bails out MBIA and they stay in the insurance business, there will be a line of insurers willing to insure us for a price. They will; still be there. They are not losing money on the municipals, they are losing money on the mortgage backed securities. If we go out short term, we might get paid to borrow money. Right now, what he figured on the notes in the first year, he expects that we could get 3% on the first year if we go with gap financing of the police station and then ratchet that up a quarter every year thereafter. Short term money is going to be very inexpensive. Mr. Brett does not