The Facts About Atlanta Bonds

  1. Need to Know - Municipal Bonds

    When a city needs money for an expensive project like the construction or repair of roads, bridges, sewers, etc., they will issue a municipal bond. Municipal bonds are attractive to investors because they are not subject to federal taxes and they tend to be good credit quality investments.

    Like a mortgage is a loan to a homeowner, a municipal bond sale is a loan to city. Like all loans, bond debt repayment comes with terms that vary based on the city's creditworthiness and other potential risk factors.

  2. Assessing a City's Creditworthiness

    Similar to the way banks review borrowers' credit histories and available collateral to assess the degree of risk in lending to an individual, so will bond market investors assess a city's likelihood of being able to fulfill its legal obligation to the debt repayment terms agreed to with its investors.

    A significant part of assessing a city's creditworthiness is the investor's confidence that the city's tax base is stable.

  3. Credit Risks - Interest Rates

    For any potential borrower, lack of stable income or collateral, or a history of missed or late payments can have devastating effects on the interest rate assigned to a loan - if a loan is given at all.

    Investors view the possible secession of Buckhead as a serious risk to repayment. If it leaves, Buckhead City takes with it a significant portion of the stable tax base that Atlanta relies on for its excellent credit score.

  4. Buckhead City Says, "Trust Us" on Repayment - Investors Shouldn't

    Contrary to what their leaders say, Buckhead City cannot negotiate debt allocation with the City of Atlanta, or with its bond investors. Since existing debt is a legal agreement between the City of Atlanta and its bondholders, discussion or negotiation about division of payment responsibility would require the bondholders involvement. Like stocks, bonds have many investors; so bringing all bondholders together with City of Atlanta and Buckhead City representatives to negotiate would not be feasible. Plus, there would be little incentive for bondholders to participate in such an exercise.

  5. The Effect on Atlanta, Buckhead, and all of Georgia

    To date, Cityhood supporters have not addressed payment of its portion of existing bond debt. Their leaders ask the people to "trust them," that they'll pay their pro-rata share, but there is no documented indication that repayment is under serious consideration.

    Investors and analysts are keenly aware of this and have expressed concern both privately and publicly, that the precedent set by secession would harm the credit ratings of both Atlanta and Buckhead City because it is unlikely that either would have the funds to pay their existing debt. Plus, Buckhead City will need additional debt to fund their startup costs. Credit ratings for the rest of the state will be at risk because investors know that in Georgia, cities can split apart at any time, for any reason.