Pittsburgh to get lowest interest rate ever for bonds, director says

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Pittsburgh's $50.4 million bond sale, largely to finance infrastructure work such as roads and bridges, will come at the lowest interest rate the city has ever received, a city official says.

City finance director Paul Leger said the sale, underwritten principally by PNC, officially closes Thursday but was completed Aug. 13. The overall interest rate is 3.2 percent.

"PNC believes this is the lowest interest the city has ever paid," Mr. Leger said. "All the banks track all of this."

The city's credit rating got a modest bump earlier this month -- from A1 Stable Outlook to A1 Positive Outlook by Moody's Investors Service -- though the low interest rate is largely the result of market conditions.

"There's a shortage of bonds and there's a glut of investors with too much cash," Mr. Leger said. "It means we got $50 million at the cheapest borrowing rate we have ever gotten."

The bond issue will bring the city’s total debt service payments to nearly $90 million next year, though Pittsburgh is quickly retiring old debt and plans to cut its annual debt service by more than half by 2019.

Jay Sommariva, vice president and senior portfolio manager at Fort Pitt Capital Group, said interest rates have fallen to "historic levels" and have created "the best market we've had in quite a long time" for municipalities looking to issue bonds.

"Municipalities are able to finance better because they're in better financial positions than they were a while ago," he said.

Though some financial forecasters, like banking analyst Meredith Whitney, have warned of widespread default on municipal bonds over the past few years -- including after Detroit filed for bankruptcy last summer -- those fears never materialized.

"It never came to fruition," Mr. Sommariva said, though he added those predictions did not reflect a consensus position of financial experts. “The municipalities were able to collect more in taxes than what some of the analysts were looking at.”

Municipal bonds, which are backed by the full faith and credit of local governments, are attractive to investors, particularly for high-income earners, because income from interest payments is free from federal and state taxes as long as the investor lives in the state where the bond is issued, Mr. Sommariva noted. 

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