Infrastructure Investment Fund
Holden Board of Selectmen
Joint Meeting
September 16, 2008
6:30PM Memorial Hall
IIF Present: Chairwoman Deb McDonnell, Ed Benoit, Paul Challenger, Jim Dunn, Peter Lacy
IIF Absent: Maria Dell’Ovo, Dawn Michanowicz
Present: Chairman Dave White, Kenneth O’Brien, Kimberly Ferguson
Absent: James Jumonville, Joseph Sullivan
Other Present: Brian Bullock, Town Manager, Jean Berg, Town Treasurer & Collector, Thomas Bartholomew, Bartholomew & Co., Inc., Charles Patterson, Bartholomew & Co., Inc., Joshua Paul, Bartholomew & Co., Inc., Elizabeth Helder, Recording Secretary
The meeting opened at 6:41PM.
Bartholomew & Co., Inc. – Investment Update
IIF Chairwoman O’Donnell said that the meeting had been called to talk about town’s current investments, performance, and the current performance of the market. Discussion centered on the town’s portfolio holding of Fannie Mae and Freddie Mac, two government mortgage lending preferred stocks that were recently downgraded to junk bond status.
Mr. Thomas Bartholomew, Principal with Bartholomew & Co., Inc. said that his firm manages the investments of over 100 communities in the Commonwealth. He said that the Town currently holds a small position in these preferred stocks which is approximately 1-2% or $60,000 of the Town’s total portfolio. He said that when these stocks were purchased in June 2008, they were endorsed by the Treasury Secretary and were AAA security rated. Mr. Bartholomew added that they believed in the bond and didn’t think that an AAA bond would fail. He explained that the failure of the mortgage industry was an unprecedented event. Mr. Bartholomew said that the Treasury is planning to inject up to 100 Billion in additional capital to shore up the mortgage lending process. Mr. Bartholomew commented that just
because the stock was downgraded, doesn’t mean that the Town has to sell it immediately. He suggested selling the stock slowly in order to balance the loss with other gains. The Town could be out of the trade by the end of the fiscal year, June 30, 2008. Mr. Joshua Paul with Bartholomew Co., Inc. commented that gains and losses get booked against interest income. Selling off at a loss, if not matched by a gain, will wipe out interest income.
Sel. O’Brien arrived at 6:58PM.
Paul Challenger commented that he thinks there are going to be a lot more downgrades which may result in the Town’s portfolio being worth less than what it is today. Mr. Bartholomew agreed adding that there is a movement to re-rate municipal debt International Lease Bond and Verizon, which could be downgraded next. Ed Benoit commented that the IIF and Mr. Bartholomew need to anticipate changes that need to be made to the portfolio to offset further the preferred stock and bond downgrades.
Town Manager Bullock commented that the anticipated loss of the FM & FM stocks is expected to be approximately 60K. Since the stock is essentially worthless, he asked the question “Why get out now?” He recommended waiting another quarter to see what might happen before starting the process to sell the stock.
Sel. Ferguson arrived at the meeting at 7:24PM.
Chairwoman O’Donnell initiated discussion among members that while the Town’s current investment guidelines allow for the purchase of AA and above rated preferred stocks and bonds, what happens when an investment is downgraded? She said that while she was happy with the performance of the portfolio to date, she had concerns about the guidelines.
Town Treasurer and Collector Jean Berg recommended that the IIF change the guidelines to reflect these new circumstances. Guidelines currently exist for the purchase of a rated bond – not how or when to sell them. Amended investment guidelines were approved at Town Meeting in the late 1990’s. Any changes to them must go back before Town Meeting and then to the Legislature. Everyone present was in agreement that the Town’s investment guidelines need to be reviewed and possibly revised to provide a protocol.
Mr. Bartholomew said his investment firm was adhering and performing to the Town’s guidelines and investment policies. Mr. Bartholomew described how the State’s Legal Investment List under MA Statute II operates. As long as the investment is within policy, is a high quality investment, and adds value to the portfolio, it is a legal investment. After reviewing some of the IIF investments, Mr. Challenger said that he would like to revisit the IIF’s current investments at a future date.
Bartholomew representatives left the meeting at 7:39PM.
The IIF Board discussed conducting a review of the current list of investments. Ms. Berg said that the legal investment list is prudent and that the current IIF investment guidelines are specific. Mr. Challenger said that the guidelines pretty much allow that investments can be anything that is legal in MA statute II, which pretty much negates any other statutes. Ms. Berg said that she could survey other communities to allow the IIF Board to compare investment policies.
Sel. O’Brien left the meeting at 7:47PM.
The IIF Board discussed the need to create a policy for what happens when something is downgraded or falls below the permitted guidelines. It was agreed that some type of trigger needs to happen that will advise the IIF Board, Ms. Berg and the Town Manager that something has been downgraded. Bartholomew is paid to manage the fund and needs to notify the Town immediately when something has been downgraded.
The IIF Board took the following actions:
Motion by Paul Challenger, seconded by Jim Dunn, it was UNANIMOUSLY VOTED TO DIRECT BARTHOLOMEW CO., INC. TO NOT SELL FANNIE MAE AND FREDDIE MAC STOCK UNTIL MARCH 2009 OR UNTIL DIRECTED BY THE IIF BOARD.
The IIF Board agreed to meet again to address reviewing the IIF guideline policy. They requested that Ms. Berg conduct a survey of investment policies in other communities; and
The IIF Board will meet November 5, 2008 at 6:30PM, location TBA. Ms. Berg will report on the current rating of International Lease and Verizon and when they were purchased by the IIF.
Minutes
Motion by Jim Dunn, seconded by Peter Lacey, it was VOTED 4-0-1 WITH 1 ABSTENTION TO APPROVE THE DECEMBER 17, 2007 IIF MIINUTES AS PRESENTED. (Abstained: Challenger.)
Adjournment
Motion by Paul Challenger, seconded by Peter Lacey, it was UNANIMOUSLY VOTED TO AJOURN THE SEPTEMBER 16, 2008 MEETING AT 8:24PM.
Approved: November 5, 2008
| 
