Underwriter candidates
These companies are competing to be Hamilton County's lead bond underwriter for the hundreds of millions of dollars in bonds the county will issue to finance a new football stadium. The county expects to select a firm in September.
A.G. Edwards & Sons Inc., Cleveland
Lehman Brothers, Chicago
Merrill Lynch & Co., New York - Local partners: Seasongood & Mayer; Conners & Co. Inc.; Ross Sinclaire & Associates Inc.
PaineWebber Inc., Philadelphia
PNC Capital, Cincinnati
Smith Barney Inc., Chicago
Source: Hamilton County
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As the price for the Cincinnati Bengals' riverfront stadium complex grows clearer and larger, the most expensive unknown is how much the project's financing will cost taxpayers.
The financing decision presents essentially the same questions home buyers face when shopping for a mortgage:
How much principal to finance?
What's the best interest rate?
Is this a good time to borrow or is it better to wait?
Can the mortgage be refinanced or paid off early?
Hamilton County commissioners are going through that process now as they debate issuing hundreds of millions of dollars in debt to build Paul Brown Stadium by August 2000.
The size and timing of the bond issue will carry multimillion-dollar ramifications.
''It's clearly a critical decision,'' said Mitchell Ziets, managing director of Public Financial Management Inc. of Philadelphia and the commissioners' financial adviser.
One of the most significant factors: interest rates.
Each point that interest rates go up will increase the county's annual debt service payments by $800,000 for every $100 million in bonds issued, Mr. Ziets said.
That means if the county issues $300 million in bonds, a 1-point increase in interest rates would add $2.4 million annually to debt service. That's a $60 million decision over the life of a 25-year bond issue.
A $300 million bond issue would dwarf the county's largest revenue bond issue to date - $172 million in 1993 for improvements to the sewer system.
Mr. Ziets has advised commissioners to take advantage of the bond market's near record-low interest rates and finance the bulk of the Bengals project cost as soon as possible.
That strategy makes sense not only because the market is attractive for the county, but also because investors want tax-exempt municipal bonds, said Richard Ciccarone, director of research for VanKampen American Capital, a mutual fund in Chicago.
''The market is hungry for municipal debt,'' Mr. Ciccarone said. ''There is much greater demand than volume.''
Of course, there's a chance interest rates could drop lower if commissioners wait, but Mr. Ziets prefers not to gamble.
''I think the risk of waiting outweighs the benefit,'' he said.
Caution likely will guide the three Republican commissioners as they prepare to issue Hamilton County's biggest debt ever.
Until the county issues bonds and locks in an interest rate, it's impossible to know how much financing costs will add to the ultimate cost of the football stadium.
The financing is made more complicated by the fact that Hamilton County expects to be building a new ballpark for the Cincinnati Reds on the heels of the Bengals stadium.
Most communities only have to figure out how to build one stadium, and Mr. Ziets said that allows them to balance debt and cash payments.
But since the county has two massive projects to build, Mr. Ziets thinks the county should borrow as much as possible while the money is cheap so the cash is on hand for the Reds stadium.
Construction and design costs for the Bengals stadium, plaza and parking are projected to be $301.5 million. Land costs are expected to add more than $30 million to that total.
If commissioners financed $300 million through 25-year bonds at 5.25 percent, financing would add $246 million to taxpayers' ultimate costs over 25 years, according to a formula provided last week by Mr. Ziets.
The county will pay a higher interest rate than that, however, because the market has changed since last week and because the revenue bonds will be paid off using only the proceeds of the county's half-cent sales tax voters approved to fund the stadiums, Mr. Ziets said. General obligation bonds, on the other hand, carry lower interest rates because all the county's resources can be used to pay them off.
But commissioners think the sales tax will generate enough money in coming years to pay the required Bengals bond payments, pay cash for the Reds project and have enough left over to pay down the Bengals debt early.
Sales tax projections lend credence to that idea.
The county tax is projected to generate $35 million for stadiums this year. If the county tax continues to grow by 5 percent a year, as Ohio's typically does, the tax will generate $70 million for stadiums in 2011 and almost $78 million for stadiums in 2013.
So while county commissioners are talking about issuing 25-year bonds, the hope is those bonds would be paid off early, maybe in 14 or 16 years, Mr. Bedinghaus said.
That, of course, is a decision future commissioners will make, Commissioner Tom Neyer Jr. said.
And it isn't something that commissioners can count on as they issue the debt, Mr. Ziets said.
''You've got so many variables, there's always a possibility that you'll be able to do that,'' to retire the debt early, said David Krings, county administrator.
''And there's always a possibility that you won't.''
As for the next step, Mr. Krings put it this way: ''We have to weigh the pain of the possibility of the market going up versus the good feeling we get if the market goes down.''
To which County Commissioner John Dowlin quipped, ''That's why some people jump off buildings and other people go to the Bahamas.''
Commissioner Bob Bedinghaus, the county's point man on stadium issues, laughed.
''I'm interested in getting on a very, very short building and staying away from the edge,'' Mr. Bedinghaus said.
Recent stories
Lawsuits put blitz on landowners August 13, 1997
Stadium estimate tops $300 million August 12, 1997
Stadium land cost a big if July 21, 1997
Who are the landowners? July 21, 1997
Stadium meeting tone upbeat July 11, 1997
City threatens to withhold land July 10, 1997
Disputed county deal mirrors old city pact July 9, 1997
Mayor rips county's deal with Bengals July 4, 1997
COA complaints take a back seat June 5, 1997
Next hurdle: Stadium land May 31, 1997
Bengals won't sell naming rights May 31, 1997
WELCOME TO PAUL BROWN STADIUM May 30, 1997
