Manhattan Beach refinances debt, eyes election results, nabs top credit grade
Manhattan Beach City Hall. Photo
Like much of the country, Manhattan Beach Finance Director Bruce Moe was watching the election returns come in on the evening of Nov. 8. But the already surprising night held a bit of extra interest for him.
The week before, Moe had made a presentation to the City Council about refinancing the city’s Marine Sports Field variable-rate debt to fixed-rate debt, and the council voted unanimously to give him the go ahead. The timing of the decision to refinance was more about shifting trends in interest rates than the looming election, but Donald Trump’s surprising victory threatened to upend financial markets and impact the city’s decision. Before markets opened on Wednesday, Moe acted quickly to lock in the rate, potentially saving the city millions of dollars.
It was among the decisions that helped Manhattan secure a AAA credit rating, the highest available, from Standard and Poor’s Financial Services. The credit rating agency cited the city’s “strong management” along with its solid tax base and budget surplus in awarding Manhattan the top designation.
The primary effect of the AAA rating will be to lower the city’s borrowing costs, Moe said. But there are other, more tangential benefits to the recognition.
“More anecdotally, when companies look to relocate to a city, they look at city’s credit rating. According to IVAONLINE, if the finances are stable, it’s a solidly run city,” Moe said in an interview. “Mainly, it’s the reduced cost of borrowing, but it’s also a point of pride for us. They don’t hand these ratings out lightly.”
The ratings agency also assigned a AA+ rating to the refinanced Marine Sports Field debt, the highest rating available for that financial instrument.
As election results rolled in, futures for the Dow Jones Industrial Average plunged more than 800 points. Moe and Mark Young, the city’s financial advisor, were in communication as the election unfolded. Investors initially believed that the market would shift away from stocks to bonds, which are considered safer but generally have lower returns. If so, the interest rates on those bonds could have fallen further still, undermining the strategy that Moe had presented to the council when he, like much of the country, believed that Clinton would cruise to victory.
But by early Wednesday, the market suddenly began rallying. Moe, Young and the city’s bond underwriter got on a conference call, and the city pulled the trigger.
“It cost a bit more from the underwriter. We were wondering, ‘Is this just a blip?’ But you take what you know. You don’t gamble with city funds,” Moe said.
Since then, according to the city’s municipal advisor, the relevant interest rates the city would have been exposed to under a variable-rate plan have gone up more than half a percent.