Gurnee schools pitch bonds — and opportunity — to residents
Residents were invited to an open house Wednesday night to learn how they can make money off Gurnee Elementary District 56's plan to borrow $28.5 million, mostly to pay for construction of a new school in Wadsworth.
District 56 will borrow the money through the issuance of Build America Bonds. Interest paid by the district to investors will be tied to U.S. Treasury rates on the day of the expected bond sale, Dec. 7.
Wednesday evening's presentation featured Anne Noble, senior vice president of public finance for Stifel, Nicolaus & Co. Inc., a regional brokerage and investment banking firm. Stifel is underwriting District 56's bond issue.
Property tax collected annually by District 56 will back the interest payments to bondholders, Noble said. She said that is a safer income stream for municipal bond investors than sales tax.
Noble said the bonds will be for varying terms from 2017 to 2030 and unlike stocks they cannot be purchased through an online broker. She said Stifel's Lake Forest office will handle the orders that must be in $5,000 increments, with priority given to local individual investors.
One drawback to the bonds is a lack of liquidity, Noble said. An investor who needs to sell ahead of a prescribed maturity date risks losing money.
But “it's one of the safest investments around,” Noble said of the predictable semiannual interest income of municipal bonds.
District 56 Superintendent John Hutton attended the presentation. His reason went beyond being the school system's boss.
“I am planning on investing,” Hutton said.
Before Wednesday's session at District 56, other financial experts said the bonds could be a proper fixed-income addition to a diversified investment portfolio.
Mount Prospect financial planner James Platania said it's unlikely District 56 will default on its loan repayments, which would harm investors. Still, he said, investors must ask questions before they buy, because principal isn't returned until a bond's maturity date.
“Make sure you understand how long you might be tying up your money for,” Platania said.
Officials said the $28.5 million loan will allow District 56 to demolish the flood-prone Gurnee Grade School. The school, where a major sandbagging effort last occurred in 2007, is off Kilbourne Road near the Des Plaines River.
Gurnee Grade School houses children in kindergarten through eighth grade. It'll be replaced by a structure for grades three through five on about 75 acres the district owns in Wadsworth.