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Township opts for bank loan over bond issuance
By T.L. HAMILTON
The Woodlands Township board of directors decided Friday to seek a short-term bank loan through Woodforest Bank to fund its Regional Participation Agreements with the cities of Houston and Conroe.
The township had planned on selling bonds to finance the deposits of more than $16 million combined before the market became increasingly more volatile, pressing them to change course.
The township will eventually sell bonds when the markets are more favorable, and pay off the loan at that time.
Both Brian Pate, financial counselor, and Drew Masterson, bond counsel with First Southwest Company, attempted to explain what Pate called “a complicated issue based on assumption” to board members.
The board had a choice of three options.
In the first option, they could sell the bonds despite the market’s volatility and an oversupply of government bonds on the market. In the second option, the board could seek a bank loan and sell bonds at a later date to pay the loan off.
The township could, under the third option, place bonds with Compass Bank under a variable rate of 3.3 percent, which could ultimately grow to more than 5 percent.
Pate told the board the last option sounds the most attractive but is ultimately not viable, as the township’s variable debt is capped at $15 million.
“We would not have been allowed to increase that cap; we would have to fund $2.3 million to make it work,” Pate said.
Spending extra cash at this time of market turbulence and in the face of a possible operating deficit for 2009 would be ill-advised, he said.
“Cash is king,” he said. “I want to keep as much cash in my bank account right now as possible, and it should be the same for the township.”
This also was Pate’s reasoning for rolling the Conroe agreement deposit of $320,000 into the loan, which he had previously said would be paid from the township’s cash reserves.
Masterson said it may take some time before the township can consider selling bonds again “because of a lack of confidence and a dislocation of the traditional buyers of municipal bonds.”
While many banks expressed interest in lending to the township, only Woodforest Bank was able to cover the entire cost of the loan, Masterson said.
Michael Richmond, vice-chair of Woodforest Bank, said later on Friday the bank considers its existing customer base a priority, which led to its decision to extend credit to the township.
“There was a local need that we were able to fulfill where there were very few other banks that could participate,” he said. “This kind of situation usually goes to the bond market but that and other markets are frozen or they’re so expensive that many customers need interim help.
“It’s not a small loan but it’s an important one for our community.”
The township had planned on selling bonds to finance the deposits of more than $16 million combined before the market became increasingly more volatile, pressing them to change course.
The township will eventually sell bonds when the markets are more favorable, and pay off the loan at that time.
Both Brian Pate, financial counselor, and Drew Masterson, bond counsel with First Southwest Company, attempted to explain what Pate called “a complicated issue based on assumption” to board members.
The board had a choice of three options.
In the first option, they could sell the bonds despite the market’s volatility and an oversupply of government bonds on the market. In the second option, the board could seek a bank loan and sell bonds at a later date to pay the loan off.
The township could, under the third option, place bonds with Compass Bank under a variable rate of 3.3 percent, which could ultimately grow to more than 5 percent.
Pate told the board the last option sounds the most attractive but is ultimately not viable, as the township’s variable debt is capped at $15 million.
“We would not have been allowed to increase that cap; we would have to fund $2.3 million to make it work,” Pate said.
Spending extra cash at this time of market turbulence and in the face of a possible operating deficit for 2009 would be ill-advised, he said.
“Cash is king,” he said. “I want to keep as much cash in my bank account right now as possible, and it should be the same for the township.”
This also was Pate’s reasoning for rolling the Conroe agreement deposit of $320,000 into the loan, which he had previously said would be paid from the township’s cash reserves.
Masterson said it may take some time before the township can consider selling bonds again “because of a lack of confidence and a dislocation of the traditional buyers of municipal bonds.”
While many banks expressed interest in lending to the township, only Woodforest Bank was able to cover the entire cost of the loan, Masterson said.
Michael Richmond, vice-chair of Woodforest Bank, said later on Friday the bank considers its existing customer base a priority, which led to its decision to extend credit to the township.
“There was a local need that we were able to fulfill where there were very few other banks that could participate,” he said. “This kind of situation usually goes to the bond market but that and other markets are frozen or they’re so expensive that many customers need interim help.
“It’s not a small loan but it’s an important one for our community.”
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mdonn76405 wrote on Nov 3, 2008 7:40 PM:
I gave you all the info that the creation by legislation for a special district instead of incorporation, was to financially benefit Senator Williams. Repeatedly the residents said they wanted to incorporate. Senator Williams, Rob Eissler, Bruce Tough, Alex Sutton, and Nelda Blair told the residents that this was the only way to do it. Some of those statements are on video tape at
http://montgomerycountymonitor.com/
You have a reputation of protecting the citizens of things just like this. We are counting on you to step up.
All the people mentioned are members of political entities. The Township is a special district by legislation.
Woodforest Loan Covers Houston/Conroe Debt
The Woodlands Township approved a $16.44 million bond bridge loan with Woodforest National Bank to fund agreements with Houston and Conroe to avoid annexation. The township, its board members and others associated with the agreements have ongoing relationships with the bank and it affiliates. Following are those disclosed at a township meeting Friday:
The Township
Depository account with Woodforest National Bank
Woodforest Financial Services is broker for township health plans
Bridge loan for annexation agreements
Board Members
Chairwoman Nelda Blair has minority interest in Woodforest National Bank stock
Board Member Vicki Richmond is consultant to the bank and her husband, Michael Richmond, serves as vice president
Board members Alex Sutton and Bruce Tough have business relationships with the bank
Other Affiliates
State Sen. Tommy Williams, R-The Woodlands, who wrote township legislation and agreements with Houston and Conroe, is a principal with Woodforest Financial.
William's wife, Marsha, is a broker for Woodforest Financial for township health plans.
Source: The Woodlands Township "