In another domino effect of the Wall Street meltdown, the Joint Development Authority, of which Newton County is a member, has had to pursue evasive maneuvers to avoid paying a higher insurance rate on the bonds for Stanton Springs Industrial Park.
At the Newton County Board of Commissioners Tuesday meeting, the board voted to accept a Letter of Credit from Bank of America to substitute for the bond insurance policy issued by Ambac Assurance Corporation.
Attorney James Griffin, who works for County Attorney Tommy Craig’s office, told the board Tuesday that due to the implosion of many Wall Street financial institutions the bond insurance industry had been negatively affected.
In 1999 when the JDA, which is comprised of Newton, Walton, Jasper and Morgan counties, bought 1,500 acres of land between Covington and Madison for the development of the Stanton Springs Industrial Park, they financed the $9 million purchase of the land by issuing variable rate demand bonds that were insured by Ambac. The bonds were secured based on the tax-digest of the four counties.
While at the beginning of the year Ambac had an AAA rating and was one of the largest and soundest bond insurance companies around, by the spring it had lost its AAA rating.
As a result of the loss of Ambac’s AAA insurance rating, the marketability of the bonds was negatively affected so the holders of the bonds chose to exercise their rights to tender the JDA bonds for purchase, Griffin said.
Griffin stressed that this was a result of the loss of Ambac’s AAA rating and not because of the financial soundness of the four counties.
District 1 Commissioner Mort Ewing, who works for an insurance agency, told the BOC that the number of AAA-rated bond insurance companies had decreased from 15 in January to three today and none of them were interested in insuring bonds less than $100 million.
Since there is currently no market for variable rate demand bonds, Bank of America Securities, which is the remarketing agent for the bonds, arranged for Wachovia to fulfill a preexisting obligation to purchase the JDA bonds.
This turned the JDA bonds into "bank bonds" resulting in an increase in the interest rate paid on them by the JDA to 6.44 percent as the rate increased from a market rate to the greater of either the prime rate or the federal funds rate.
Prior to the loss of Ambac’s AAA rating, the interest rate of the bonds would have been 2.5 percent in August. Under that rate, the JDA’s debt payment on the bonds in 2008 would have been $400,000. Due to the increase in the interest rate of the bonds, the debt payment increased to $630,000 in December.
As Newton County has a 37.5 percent ownership share of Stanton Springs, it would have been responsible for paying its share of the $630,000, or $236,250.
By substituting a Letter of Credit from Bank America for the Ambac insurance policy, Griffin told the board that the JDA would be able to bring its interest rate down to normal levels for 2009. This would revert the repayment schedule of the bonds back to the original payment schedule of $400,000 for the year.
Griffin told the BOC that Morgan and Walton counties had already ratified the change, which requires an amendment to the intergovernmental agreement governing Stanton Springs. He told the board that he anticipates Jasper County will agree to the change at the beginning of the year.