Oops, PNJ mistakes net for gross

In Oct. 15, 2005 presentation to the Pensacola City Council, the City staff made it clear that the net funding to the Community Maritime Park would be $40 million—and that is the contractual obligation that the City has to the park. It always been understood that the bond issue would have to be around $42 million to net that amount.

The PNJ continues to overlook that major point in its reporting on the bonds. I was concerned about capitalizing nearly $5 million in interest because it pushed the bond amount up to $45-48 million, and I believe the CRA has the funds to pay the interest.

However, I did get this note from a local banker: “Interest reserves are quite common in muni and corporate bond issues, and also quite common for loans of all types where the proceeds are used to finance construction. Furthermore, the credit markets these days are placing additional risk-mitigating elements in bond issues of all types that would not have been considered 3 years ago. An interest reserve clearly reduces the risk of the bond holder, and in this case might be required to get the bonds sold at an appropriate rating and price. The interest reserve being created will fund interest expense that would have been paid anyway. The only “additional” cost is the interest expense on the new money being borrowed, or about $300,000 per annum.”