Thursday, September 25, 2008

Tax-Exempt Bond Market Hits Worst Rates In 6 Years

Feather News

The Mohegan Tribe said they were still intent on borrowing money for a new government building and community center despite facing tax-exempt interest rates that are the highest in more than six years.

According to a Bloomberg Financial News report, "Variable interest rates on tax-exempt debt soared to a record, higher than long-term, fixed-rate yields, boosting concern that investors who borrow to finance bond holdings are being forced to sell amid weak demand. Issuers have postponed more than $7 billion in planned borrowing, after Lehman Brothers Holdings Inc. sought bankruptcy protection Sept. 15, sparking a shakeup that's reshaped Wall Street and led the U.S. government to propose a $700 billion rescue. State and local governments also face costs as high as 9 percent on variable-rate demand notes amid outflows from money- market mutual funds that continued yesterday."

"Interest costs on debt sold by issuers such as New York City, with rates set daily or weekly, climbed as much as fivefold in the past two weeks to 9 percent or more."

The Tribe has stated in the past that they hope to borrow money for the building for 30 years in such a way that they can delay the first interest payment for five years. Last week, the Tribe was to borrow $51 million but said they were delaying the borrowing.

The Tribe has said the building would cost $89 million but, according to one high official, the building could cost $100 million. After including interest expense on the borrowing, the building could eventually cost as much as $300 million (the equivalent of close to $300,000 per tribal adult).

Last year alone, the Tribal government paid just over $7 million in interest expense and it is likely that figure will double upon borrowing the total amount for the government building.