Denver this week will deliver on a pledge to sell $500 minibonds, which officials are offering to small investors as a way to build interest and political backing for borrowing plans.
Voters have already shown strong support for the bonding authority, agreeing to a $98.6 million referendum in November. As part of its pro-bond campaign, the city said it would issue a chunk of the bonds in increments appealing to a less traditional tax-free investor.
This week residents of the combined city and county of Denver will get their chance to buy the securities when the city opens an order period for what it has dubbed its "Denver Mini Saver Bond" program, which allows individual Colorado residents to buy up to 40 of the bonds for $500 each. The total size of the offering will be determined by demand.
Prior to last year's election, city officials promised to make bonds available to small, individual investors. The idea is to give Denver residents an easy way to invest for retirement or their children's college educations on a tax-exempt basis.
But officials also see it as a means to make residents more aware of capital needs and to create a community of local investors who will hold a stake in the city's financial future.
"The voters asked for it, we promised it to them, and this is a way to satisfy some demand," said Cheryl Cohen, manager of revenue. "They believe in their city and they want a piece of it."
Denver has held two similar sales, bringing in $6 million in 1990 and $4 million 1992. Since then, Arapahoe and Jefferson counties in Colorado also have proposed selling minibonds, approved last year, to individual investors without the use of an underwriter.
Denver officials begin this week marketing the debt directly to individual investors in a number of ways, including an Internet site, direct mail, advertisements, promotions, and an automated telephone system. Their goal is to have investors respond to the promotion, and obtain a copy of the preliminary official statement before the city starts accepting orders between March 29 and April 2.
The double-A rated, zero-coupon bonds will carry an interest rate of 4.75% and mature in 15 years, returning investors $1,000 for each $500 minibond at the end of the term. Individuals in the 31.6% combined federal and Colorado tax bracket will earn a true yield of 6.94%, according to the city.
The preliminary official statement sizes the sale at $3 million, but the city plans to fill all qualified orders up to the full $98.6 million authorization, if necessary. The balance of the authority will be offered later during a more traditional bond sale.
"We'll fill every order that qualifies," said Steve Hutt, Denver's treasurer. Denver will spend the proceeds on a host of projects, including parks, libraries, streets, as well as health care and police facilities.
To qualify, investors must live in Colorado and buy bonds for their personal investments, not as a broker. They must obtain the preliminary official statement, certify that they have read it, and provide a cashier's check when they submit their order.
With no underwriter, the city is handling the sale itself, though Banc One Corp. has been retained as the processing agent and registrar for the deal.
"This type of sale is a pain in the butt to do, but people really wanted it," said city revenue manager Cohen.
Hutt agreed that a direct-to-retail offering requires finance officials to use "a whole different mind-set" in preparing for the deal, but he doesn't think the cost is any greater. The extra costs of promoting the sale will likely be offset by saving underwriter's cost, if the city sells as least $3 million of bonds.
If the city sells more, he said, the cost per bond would decline and the city might save on some of its issuance costs. There are no fees or commissions being charged by the city to investors who buy the bonds, which should prove an extra enticement.
"It's probably a wash when it comes to the cost by the time we pay to print the brochures and run the advertising," said Hutt.
As part of its announcement of the bond sale this week, Denver is launching a marketing and promotional program that includes packages of information for the local media that offer question-and-answer explanations of how municipal bonds in general work and how the minibond program will work.
The minibond program has no call features, and will not be redeemed prior to maturity. City officials expect that no significant secondary market will develop for the debt.
Last week Fitch IBCA Inc. issued a AA rating on the bonds and affirmed its rating on $457.5 million of outstanding general obligation debt. Fitch said Denver's credit is aided by a growing economy, sound financial operations, and manageable debt levels. The city's general fund has maintained strong year-end balances and sizable annual surpluses, Fitch noted.
Not all investors in town are excited about the bonds. Calvin Isaak, president of Isaak Bond Investments Inc., which trades bonds and manages bond funds, said the bonds would probably not be something he promotes. He doubts investors who buy bonds in $500 increments would need the tax benefits of municipal bonds.
