CDA to float $60-M bond this month

The Commonwealth Development Authority is anticipating to finally float the $60-million municipal bond by the end of the month, a development that has the promise to hasten pending major infrastructure projects and increase business activities on the island.

Executive Director Marylou S. Ada said CDA’s bond underwriters in the mainland United States are already in the process of obtaining the needed rating before the bond is floated in the open market.

“It is now in the hands of the bond underwriters. They have already submitted it to secure rating. When it is rated, we can go out in the market and float the bond,” Ms. Ada said in an interview.

She added that CDA is hoping to receive a word from the underwriters in the next couple of weeks in order to finally sell the $60-million bond in the open market by the end of the month.

The municipal bond has been in the offing since last year but was not immediately floated due to economic difficulties and higher prevailing interest rates, resulting to the dragging completion of major infrastructure projects in the Northern Marianas.

CDA Board Chair John S. Tenorio said the government had to postpone the flotation of the municipal bond from March to June 2000 due to the higher interest rate prevailing in the U.S. market.

Mr. Tenorio said interest rates normally increase by 30 basis points or by one percent during the March-May period, adding that floating the $60 million bond this time would be beneficial to the Commonwealth’s depleting coffers.

According to Mr. Tenorio, interest rates normally stabilize beginning June or July which, he stressed, should be the most appropriate time to sell the tax-exempt municipal bond.

The bond is being eyed for use to match available federal funds under the Section 702 of the Covenant, which guarantees U.S. funding for Capital Improvement Projects that can be tapped only if the CNMI identified local matching money.

The CNMI government is pressed at identifying local funds in light of criticisms from Washington D.C. and the U.S. Congress on its inability to use federal money earmarked for the islands under the Section 702 of the Covenant.

The CNMI gets $11 million annually for CIPs. A backlog of approximately $44 million in CIP funds has been accumulated by the CNMI. The full amount of $11 million would be diverted back into the CNMI, but in the form of smaller increments over a longer period of time.

In order to fortify the salability of the bond in the open market, Mr. Tenorio said government finance managers have started looking at the stability of the Commonwealth’s fiscal house, particularly its ability to generate enough revenue and its capacity to reduce outstanding budget deficit.

Paine Webber handled the $16 million bond floated by the Public School System last year. Mr. Tenorio said this gives the agency edge over other underwriters in terms of knowledge and understanding of the CNMI economy.

Half of the total $60 million bond proceeds will be used to pay the $30 million borrowed by the CNMI government from the Bank of Guam.
The interim financing was decided by the CDA board to nourish the economy with infrastructure projects identified in the 702 CIP Master Plan.

The government is hoping to expedite construction of infrastructure projects due to the possible multiplier effect of over $60 million worth of capital infrastructure projects which has been anticipated to reach more than $400 million in four years.