The U.S. government will subsidize interest that Denver Water will have to pay on $44 million in bonds for capital projects that the utility issued Thursday.
Denver Water is the first agency in the state to issue bonds as part of a new program created by the federal economic-stimulus bill.
They were purchased by Wachovia Bank, said Chips Barry, Denver Water manager. “We expect they will turn around and sell those bonds,” he said.
Normally, the department issues tax-exempt bonds, and those who buy them pay no tax on the interest they generate.
The Build America Bonds issued Thursday are taxable, with a 35 percent federal subsidy on interest costs.
The bonds have an interest rate of just more than 6 percent. But thanks to the federal subsidy from the American Recovery and Reinvestment Act, Denver Water will pay 3.94 percent interest. That is less than the department’s outstanding tax-exempt bonds, on which it pays an average of 4.23 percent interest.
Buyers should make a larger profits from the higher interest rate than they would on tax-exempt bonds, Barry said.
