JCPS earns high credit rating in bond sales

Through all of the run-up to the April election in which voters approved funding for a second public high school in Jefferson City, and in the aftermath, people might still have a fundamental question on their minds: What is a bond?

Furthermore, when the district sold $85 million worth of bonds last Tuesday on the opening day of sales, what does it mean that the district secured an underlying credit rating of AA- from Standard and Poors (S&P)?

Jefferson City Public Schools' chief financial and chief operating officer Jason Hoffman explained a bond is debt, but a debt that's bigger than any one bank's capacity to handle it.

When someone buys a bond, they're essentially giving the owner a small piece of a larger loan, a piece upon which the buyer expects to earn some interest.

Last week, so many people were interested in buying the district's bonds the interest rate actually dropped, which will save the district some money in the future.

The $85 million sale of bonds generated about $122 million in orders, and that led to the interest rate on the bonds being lowered to 3.35 percent, down from 3.37 percent - which equates to hundreds of thousands of dollars of savings for the district.

The district's budget assumes about $27.6 million worth of construction on its two high school projects that will take place during this coming fiscal year.

"We'll just have to see how the construction project is going" in terms of when the rest of the bonds to pay for the projects will be sold - maybe this time next year - Hoffman explained.

He said the reason for selling so much excess value of bonds now - but also not the full $130 million estimated the two high school projects will cost - is the district has to be "reasonably sure we will spend all of this money in a three-year time period."

He said the difference between the total proceeds of the initial sale and the amount needed for construction in the coming year will be safely invested short-term to earn whatever amount of interest the district can get.

The district's high credit rating issued by S&P tells buyers of their bonds that they have more security that they will receive a return on their investment plus interest. This in turn provides the sense of security to lower the interest rates.

Hoffman explained that S&P thoroughly examines a district's business and policies and procedures before issuing a credit rating. Only 15 school districts in the state have a better credit rating than Jefferson City - affluent communities in the St. Louis and Kansas City suburbs among them.

"I would say we have similar business practices," Hoffman said of the district's credit rating company, but those other communities like Ladue, Lee's Summit, Blue Springs and Pattonville have more robust underlying economies, which the rating agency also takes into account in its analysis.

In terms of who's interested in the district's bonds, he said he knows Central Bank made some purchases, but doesn't know for sure about the Hawthorn or Jefferson banks.

The district's bond sale manager, Stifel, reported the district also received orders from a variety of other banks, trust departments, insurance companies and investment advisers, including Nuveen, Franklin Fund, Eaton Vance, US Bank, Northern Trust, State Farm, UMB Bank, St. Paul and Commerce Bank.

Stifel is a St. Louis-based brokerage and investment banking firm.