Investing Bond Proceeds

Will County issued $175-million in 30 Year Bonds at 3.66% on August 9th.

The proceeds will fund construction of a new Courthouse, Sheriff’s Facility, and replace the century-old Health Department building.

As custodian of the bond’s proceeds, the Will County Treasurer invests this money until we pay architects, contractors, and suppliers.

Last month, we asked our investment partners how we could work with them to invest these proceeds. We expected to diversify the assignment among several financial institutions as a way to manage risk. The bond will double our assets under management, so diversification is a very important consideration.

After conversations with the County Finance Department, we structured the investment in three duration-based tranches.

• Tranche 1 covers August 2016 to July 2017 and is an investment of $35.8-million.
• Tranche 2 covers August 2017 to July 2018 and is an investment of $72.2-million.
• Tranche 3 covers August 2018 to July 2019 and is an investment of $114.2-million.

These tranches reflect our expectation as to when the county will spend money on these capital projects.

We further diversified the investment by working with five firms.

• Tranche 1 is with First Empire Securities at $35.8-million.
• Tranche 2 is with Fifth Third Securities and MB Financial, each with $36.1-million.
• Tranche 3 is with JP Morgan and Wells Fargo, each with $57.1-million.

Another important consideration for us is arbitrage. The county cannot make more investing the money they we pay to our bond holders. We cannot earn more than 3.66% on the bond proceeds while we invest the money. We also want to segregate this money from other investments so the actuarial study is easier to perform in five years.

Quite a learning process for me and our team, to say the least.