The city of Central Falls had attempted to enter receivership and its bond rating has sunk to junk status. You’d think any bonds with the city’s name attached would be a tough sell on the municipal debt market, no matter the interest rate offered.
But earlier this month, Westerly-based The Washington Trust Co. agreed to buy $4.25 million in school construction bonds issued through the R.I. Health and Education Building Corporation for Central Falls.
The city had been in danger of defaulting on a $4 million general obligation tax-anticipation note.
But the bond sale allowed the city to be reimbursed $1.1 million for school repairs it had already paid for. That reimbursement was used to prevent the default.
By issuing the bonds as qualified school construction bonds, the Health and Education Building Corporation said the interest expense for the 10-year term will be subsidized by the federal government, resulting in a net interest rate of 0.68 percent.
Joseph MarcAurele, Washington Trust’s chairman, president and CEO, answered five questions about the deal.
PBN: How did the transaction between Washington Trust and Central Falls and the Health and Education Building Corporation come about? Did they approach the bank? How long did negotiations take?
MARCAURELE: Washington Trust was contacted by both the Health and Education Building Corporation and state officials in regard to the transaction. Negotiations were completed within 24 hours to the satisfaction of all parties.
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PBN: Was this purely a business deal or was it approved by Washington Trust in part as a community-relations move – helping out a city in dire need?
MARCAURELE: This transaction had the dual benefit of being a reasonable investment for Washington Trust and providing help to the city of Central Falls in an area of critical need. The bank feels very strongly that providing service to the communities in which we do business is always the right thing to do.
PBN: I assume that the provision allowing for state aid to Central Falls to be used for the debt service payments was the linchpin for the deal. True? Were there other concerns? After all, Central Falls had recently said it was insolvent?
MARCAURELE: The underwriting of this deal was based on a variety of factors. Ultimately, we became comfortable with the sources of repayment as we would with any investment that we consider.
PBN: Has Washington Trust purchased qualified school construction bonds, or any municipal bonds, in a private placement before?
MARCAURELE: We have purchased a number of municipal securities. Most were public offerings. However, this is not the first private placement done by the bank.
PBN: Will Washington Trust consider purchasing future Central Falls bonds?
MARCAURELE: Under the right circumstances, Washington Trust would consider doing more. We are pleased that this situation worked for both Central Falls and the bank.
