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Clear Lake snags 'favorable' interest rate on McKesson bond

McKesson exterior

The McKesson Corp. is located on 12th Avenue South in Clear Lake.

A financial process the city of Clear Lake decided to proceed with will save it more money than projected over the next four years.

That’s thanks to another favorable interest rate, said Creighton Schmidt, Clear Lake finance director.

The Clear Lake City Council unanimously approved a resolution awarding the sale of its four-year $715,000 taxable general obligation refunding bond for the McKesson Corp. to Clear Lake Bank & Trust at a 0.35% interest rate.

Clear Lake Bank & Trust was one of two local banks to submit a proposal for the bond. The other was Manufacturer’s Bank & Trust, or MBT Bank, at 0.52%.

The council’s action came two weeks after it approved a resolution to proceed with the process and solicited bids from local banks.

Bond refunding is the process of paying off higher-cost bonds with new debt that has lower interest.

In March 2014, the City Council approved the issuance of $1.62 million in bonds to facilitate a portion of the costs relating to the 340,000-square-foot McKesson distribution center on 12th Avenue South in Clear Lake.

The bonds were callable, or allowed to be paid off early, on June 1, 2019, or after.

The city of Clear Lake refunded the June 1, 2021, through June 1, 2024, maturities from the 2014 bonds for a principal amount not-to-exceed $715,000, which was about 43% of the original principal.

The estimated savings to the city for refunding the bonds, after consideration of issuance costs, is about $20,254, or nearly 3% of the refunded par amount.

The total interest costs associated with the bond is $4,437.

“So next to nothing when you have an interest rate that is that favorable,” Schmidt said.

It was originally estimated that the refunding of the McKesson bonds would save the city about $19,100.

Clear Lake City Administrator Scott Flory told the council in December preliminary conversations with community banks related to two upcoming bond issuances — one for the Marriott hotel and event center project and another for land acquisition — made refunding the 2014 bonds desirable for the city.

The 2014 bonds for McKesson were the city’s only outstanding bond-market obligations; its other debt is placed with local banks.

The bond issuance brings the city’s total debt placed locally with an interest rate below 1% to four within the past six months.

The city awarded its seven-year $1.2 million and $600,000 bonds for the hotel and event center project and land acquisition, respectively, to local banks earlier this month.

Clear Lake Bank & Trust received the bid for the Marriott hotel note proposing a 0.55% interest rate, and MBT Bank received the land acquisition bonds with a 0.42% interest rate.

In September, the council awarded its five-year $700,000 general obligation loan note for its contribution to the Clear Lake Community School District’s recreation and wellness center to MBT Bank at a 0.37% interest rate.

The city’s financial adviser Chip Schultz, managing director of public finance with Northland Securities, told the council at its last meeting he believes after Clear Lake refunds its 2014 bonds, it’ll be the only city with debt in the state that has an average interest rate below 1%.

Work is being done to the property adjacent to Woodford Lumber on Seventh Avenue North in Clear Lake. The lot, now owned by the lumber yard, is the site former Ladybug Café, which was recently demolished.

According to a document he prepared, Clear Lake’s weighted average interest rate on all outstanding general obligation debt, including seven bonds for nearly $3.9 million, is 0.599% after the city closes on the refunding bond.

“Well done to the city,” Schultz said, joining Monday’s meeting by telephone. “This wouldn’t happen if not for the good financial stewardship that you’ve been practicing over the years, so kudos to you for that.”

The council will consider a resolution authorizing the issuance of the refunding bonds on Feb. 1.

The city anticipates the delivery of funds and effective redemption of the 2014 bonds on or before Feb. 25.

Ashley Stewart covers Clear Lake and arts and entertainment in North Iowa for the Globe Gazette. You can reach her at or by phone at 641-421-0533. Follow Ashley on Twitter at GGastewart.


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