Kannapolis delays selling bonds amid market turmoil
By Joanie Morris
KANNAPOLIS ó The nation’s shaky financial picture has forced the city to put a temporary hold on plans to sell a $95 million bond package to finance improvements around the N.C. Research Campus.
But city officials say they remain cautiously optimistic about the sale, which City Manager Mike Legg said should be back on track sooner rather than later.
“We were in the process of getting all our final documents together to send to investors” when the market started tumbling last week, Legg said Tuesday afternoon.
The $95 million is the first phase of the total bond package, worth $168.4 million. The city expected to issue the bonds this week, but Legg said market volatility convinced city officials to heed the advice of project underwriters and delay the anticipated sale of the bonds.
“As each day went along (last week), it became a lot clearer that this was going to be a problem,” Legg said. In fact, Legg said Kannapolis isn’t the only entity dealing with market difficulties. Wake and Cabarrus counties have delayed bond issues because of the market problems. The delay won’t be a long one on the city’s end, though.
“We’re still going to send out the statement and then let the market come to us,” Legg said.
Once investors get the package, they will be able to see how the project is financed, what their money will be used for, a description of each project and a total overview of the N.C. Research Campus.
The total bond package is meant to pay for roads and other public works improvement projects around the N.C. Research Campus. The bonds are self-financing, meaning the debt will be repaid using increased property taxes from the Research Campus development zone.
The second issue for the remainder of the bond package should come 18 months or so after the initial $95 million, Legg added.
“At some time, when the time is right, we’ll price the bonds,” he said. “That could happen in a matter of days or a matter of weeks.”
Legg said the delay in issuing the bonds came after discussion among the city and county, Castle & Cooke and the underwriters.
“We all agreed,” he said. “Right now, there would not be an investor. We’re going to hit the send button this week.”
And Legg said he hopes the city will know more “next week at the latest.”
After that, he said, it’s “wait and see.”
He added that if pricing of the bonds stretches into months, that could lead to a whole new set of problems ó what he calls the city’s “worst-case scenario” in which the planned improvements would have to be paid for another way.
Already, about $13 million in improvements have been made in Kannapolis ó $3 million paid for by the city and an additional $10 million paid for by Castle & Cooke. Legg said repayment to both entities will come from the bonds once they are sold.
The bonds are being underwritten by Bank of America, Wachovia Securities, Citigroup and BB&T. Legg said that the sale of Wachovia to Citigroup should not affect the bonds in any way.
“It’s my understanding that Wachovia Securities is going to remain intact,” Legg said. Even if it is absorbed by Citigroup, that banking giant is also an underwriter.
“Chances are that will remain the same. I don’t think we’d lose anything. We’d have three underwriters instead of four, but the customer base would be the same.”
Other than the bonds, the market has not affected Kannapolis, Legg said, and the city is in good shape financially.
“We’re pretty conservative with our investments,” he said.
“We still think the bond issue is solid,” Legg said. “The Research Campus has $300 million worth of private investment already on the ground. That bodes well for us because … you can touch and feel it.”
Legg said he believes the delay will be a short one and, in the interim, the only work being done is design work, which is being paid for by Castle & Cooke. “We’re in a little bit of a lull between projects.”
Legg said the city has about two or three months before things are “critical” again and projects will have to begin, sometime in early 2009. Money the city and Castle & Cooke put up for projects will be repaid through the bond issues.
He added that current projects were paid for out of cash reserves and no other city projects or anticipated budget items will be cut to pay for those improvements.
“We’re not at risk for anything,” he said.
“It’s fully our intent to get repaid.”
Legg said he doesn’t know what the city will do if the bonds are not issued.
“We haven’t even remotely discussed that,” he said. “If we couldn’t issue the bonds, the whole project could take on a different scope.”