1811 Bethlehem Pike
Flourtown Commons, Suite 350
Flourtown, Pennsylvania 19031
Telephone: 215-402-0270
Telefax: 215-402-0274
Delaware Valley Regional Finance Authority
Market Commentary
October 15, 2014
Interest rates decreased following the Columbus Day weekend as a result of the
continued geopolitical tensions, the Ebola epidemic, and the weakening European economy.
Interest rates have continued to drop dramatically on Wednesday due to the release of weaker
than anticipated Producer Price Index and Retail Sales data. The combination of anemic U.S.
economic data and the other prevailing investor fears has caused investors to continue to flee to
the safety of the U.S. Treasury and bond markets.
Trend of Loan Rates* for the Past Year
3.50%
3.00%
20 Year Fixed
15 Year fixed
2.50%
12 Year Fixed
2.00%
9 Year Fixed
6 Year Fixed
1.50%
3 Year Fixed
Variable Rate
1.00%
0.50%
15-Oct
5-Dec
Loan Rate*:
20-year fixed rate:
15-year fixed rate:
12-year fixed rate:
9-year fixed rate:
6-year fixed rate:
3-year fixed rate:
Variable rate:
28-Jan
Since
1999
3.992%
3.934%
3.824%
3.623%
3.302%
2.765%
2.142%
19-Mar
Average Rate*
Past
2014
Year
2.907%
2.818%
2.660%
2.362%
1.880%
1.060%
0.954%
2.942%
2.850%
2.686%
2.374%
1.866%
1.027%
0.957%
8-May
27-Jun
Past
Quarter
Current
Rate*
2.752%
2.671%
2.531%
2.278%
1.879%
1.154%
0.946%
2.561%
2.483%
2.348%
2.110%
1.731%
1.087%
0.940%
18-Aug
7-Oct
*Assumes 20 year loan amortized
to produce level debt at the
20-year fixed rate, no options.
Rates as of:
October 14, 2014
A comparison of the All-In True Interest Costs for a 20-year level debt structure, among a
DelVal Loan, a bond issued at “AAA” General Obligation rates (the “AAA G.O. Bond Issue”),
and the average bond issue in the DelVal Market Area (the “Average Bond Issue”) is shown in
the chart below. The calculations of “All-In True Interest Costs” incorporate all costs of issuance
and interest payments. The “DelVal Market Area” consists of (i) the local governments and
authorities in Bucks, Chester, Delaware, and Montgomery Counties (collectively the
“Counties”), (ii) the county governments in eastern Pennsylvania, and (iii) any local government
or authority outside the Counties that has borrowed funds from DelVal. The costs of issuance of
the AAA G.O. Bond Issue and the Average Bond Issue are based upon actual costs of issuance
of bond issues in the DelVal Market Area, calculated monthly, and the costs of issuance of the
DelVal Loan are based on the actual costs. The interest rates of the AAA G.O. Bond Issue are
based on the published Bloomberg “AAA” General Obligation Bond Indices (the “AAA G.O.
Indices”). The rates of the Average Bond Issue are based upon the spread of the interest rates of
the actual bond issues in the DelVal Market Area over (under) the AAA G.O. Indices, calculated
monthly. The DelVal Loan rates are based on actual rates.
Comparison of the All-In True Interest Costs of a 20-Year, Level Debt Structure
among a DelVal Loan, a Bond Issue Sold at the Bloomberg AAA G.O. Indices,
and the Average Bond Issue in DelVal’s Market Area
4.25%
Average Bond Issue in DelVal Market Area
4.00%
Bloomberg AAA G.O. Indices
DelVal Loan
3.75%
3.50%
3.25%
3.00%
2.75%
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2.50%
Below is a comparison of the Average Bond Issue for the past year, based on the average
costs of issuance and spreads over (under) the Bloomberg AAA G.O. Indices, and the
comparable DelVal Loan, based on actual rates and costs for the past year.
Comparison of the Average Bond Issue and a
Comparable DelVal Loan for the
Year Ended September 30, 2014
Average
Bond Issue
Comparable
DelVal Loan
DelVal
Savings
Proceeds of the issue
$ 14,135,000
$ 14,032,000
$ 103,000
Uses of funds
Projects
Underwriters' fees
Other issuance costs
Total
$ 13,947,950
103,563
83,487
$ 14,135,000
$ 13,947,950
70,160
13,890
$ 14,032,000
$
Total Debt Service
All-In True Interest Cost
$ 20,073,318
3.747%
$ 19,461,533
3.426%
$ 611,786
0.321%
33,403
69,597
$ 103,000
DelVal Loans also offer other advantages that bond issues and bank loans cannot. Loans
may be set to a variable rate or a fixed rate, and fixed rates may be set for any period of time up
to the maturity date. Loans may be split between fixed and variable rates or fixed rates with
different scheduled termination dates. Variable rate loans can be converted to a fixed rate at any
time, and DelVal does not assess any fees for the conversion.
DelVal Loans also eliminate the churning of refunding issues. The typical 20-year bond
issue in Pennsylvania will be refunded three times, and costs of issuance paid four times, before
its original maturity. Refunding can be avoided with DelVal Loans by simply resetting the loan
rate (by purchasing an option or by setting the fixed rates to periods shorter than the maturity
date). DelVal does not assess any fees to reset the loan rates.
Information on the DelVal Loan Program, including loan applications and financial
statements, may be found on the DelVal web site: http://www.DelVal.US. Please contact
DelVal’s Program Administrator, Calhoun Baker Inc., for additional information.
Jeffrey T. Calhoun
Calhoun Baker Inc.
[email protected]
Telephone: 215-402-0270
Telefax: 215-402-0274
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