Local Views Counterpoint: ‘Comparing Apples to Oranges’

Dr. Zis Weisberg’s September 18, 2017 opinion piece in the Stillwater Current provides enough tosspottery for a week long seminar on political dishonesty and deception.

For now, let’s start with his false claim that something was amiss in Stillwater Area Schools paying its financial advisor, RW Baird, $115,000 for work on a “competitive” sale bond issue, compared to the Sartell (Sartell-St. Stephen) School District paying its financial advisor, PMA, about $10,000 for work on a “negotiated” sale bond issue.

The two companies did completely different types and amounts of work on two different types of debt sales. The types of work that must be completed on the two types of sales are not identical.

Equating fees for a negotiated debt sale with a competitive debt sale, where the services provided by the financial advisors involved in the two sales was completely different, is dishonest and deceptive. Dr. Weisberg compares apples to oranges.

The Sartell-St. Stephen School District bond issue that Dr. Weisberg references was what is called a “negotiated sale.”

With a negotiated sale the date of sale is subject to change and the debt buyer can negotiate (impose) terms. Reasons for a negotiated sale may be a poor credit rating, timing the market, a very small borrowing, a very large borrowing, or a story to tell. In Sartell-St. Stephen’s case they sold two different types of bonds, a current interest bond and a capital appreciation (or zero) bond.

PMA’s work for Sartell-St. Stephen was very, very limited. The only work PMA performed for Sartell-St. Stephen was what is called a “fairness opinion.” A fairness opinion is limited to reviewing the pricing, discount rate, call features, and the offering price compared to similarly rated bonds. PMA offered no opinion on the debt structure, nor did it provide any other necessary services for the bond offering and negotiated debt sale.

In stark contrast to Sartell-St. Stephen’s, the Stillwater Area School District held a “competitive sale” of debt for current interest bonds only. In a competitive sale the date of sale may not be changed, the sale is advertised, and the terms are set by the seller (in our case our school district set the terms, the buyers did not impose them).

RW Baird provided much more complicated and extensive services for ISD 834 than PMA provided for Sartell-St. Stephen. Among other things ISD 834’s contract with RW Baird called for them to advise ISD 834 on the debt structure, the timing of the sale, the terms of the sale regarding financing, the methods and types of financing available, respond to requests from potential investors, assist in the selection of one or more underwriters for the financing, arrange and facilitate visits from credit rating agencies and insurers, and prepare the settlement statement for the bond sale. PMA did not provide those services to Sartell-St. Stephen’s.

The type of sale chosen by a school district or private company depends upon the circumstances. It is not possible to say unequivocally that one type of sale is preferable, or even less expensive to conduct. Some school boards have preferences for one type of sale over the other.

Nothing was done for free in the Sartell-St. Stephen’s bond sale. Some of the work performed by ISD 834’s financial advisor in our last bond sale was performed by firms other than Sartell-St. Stephen’s financial advisor, and that district paid for those services. The types of work that were needed for each type of sale are not even identical.

The two districts purchased very different services from their financial advisors, and held different types of debt sales.

If one compares the cost per dollar borrowed to other school district bond sales of similar amounts in Minnesota, ISD-834’s last bond sale appears to have been an excellent deal for the district.

RW Baird’s fees for dollar of debt sold compare very well to other recent Minnesota school district bond sales of similar size. In addition RW Baird obtained excellent results for ISD 834, making the cost per dollar borrowed exceptionally low. Dr. Weisberg artfully avoids the pertinent evidence.

Dr. Weisberg complains that I attacked his credibility. I did not. Dr. Weisberg’s and 834 Voice’s credibility is undermined by their own words and actions, not by anything I say.