What is the upfront cost of GO bonds to the village?

Will it cost us $1 million? Will it cost us $500,000? Can the members of our Village Council please tell us: How much will it cost to issue the $100 million GO Bonds?

When a municipality such as the Village of Key Biscayne goes to the capital markets, it needs professional help. Especially since we want to raise $100 millions.

Lead Manager. We need a reputable financial institution to help prepare the necessary information and in presenting it to potential investors/lenders. Someone like Morgan Stanley comes to mind. The assistance of the Lead Manager is critical since they not only know how to present our financial condition but most importantly they know which investors/lenders will be interested in buying our paper. A Lead Manager does not work for free. A 1% fee would be $1 million; 50 basis points will be $500,000.

Outside legal representation. Our in-house counsel is not sufficient to represent us in this financing. We will require outside counsel, someone like Greenberg Traurig or similar. We all know that legal representation is not inexpensive. A Greenberg Traurig does not work for free. Since the GO Bond is for $100 million, a fee in the range of $200-300,000 is not unreasonable.

Due diligence. The village has to convince investors that we are financially sound today and that we are able to service the debt going forward. Pro forma statements need to be prepared, legal documents need to be reviewed, meetings have to be attended, etc. Not sure if existing village personnel are sufficient to cover these tasks. Even though the Lead Manager will help, we might need to hire a consultant to help gather and prepare the required information and follow-up on the financing. Consultants do not work for free.

Commitment fees. This is of particular significance with our GO Bonds since we are not specifying when we are going to need the money and how much are we going to draw at any given time. Lenders do not like uncertainty unless they get paid for it. Ten basis points is $100,000; 20 basis points is $200,000. Again, there is no free lunch.

Municipal Financing is not my thing. You should question all figures given above. So, I implore all council members to give the residents of Key Biscayne an estimate of how much we will have to pay upfront for a bond/loan that we are not yet ready to use.

Julio J Diaz

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