Refinancing debt saves nearly $500,000Published 8:00am Thursday, July 18, 2013
JACKSON – The refinancing of three General Obligation bonds, worth $9.5 million, will save Northampton County local government nearly a half-million dollars.
The county’s Board of Commissioners approved that measure here Monday after Ted Cole, representing Davenport & Company (the county’s financial advisor), laid out the savings on Northampton’s debt obligations.
The three bonds affected by the decision include $1.95 million in water bonds from 2002, which is paid for through revenues generated by the county’s Enterprise Fund, and a pair approved back in 2005 – $4.38 million in a capital improvement project for the county school system and for the water system, and $2.33 million in another Enterprise Fund project.
Davenport told the commissioners he initially sought investors from the public bond market for refinancing, but found traditional bank loans more appealing in this particular case.
“The public bond market investors are being extremely cautious right now in buying municipal debt because interest rates have gone up for a number of reasons,” Cole said. “It becomes more difficult to refinance debt through that market.”
He sent out requests for proposals to 20 national, regional and local banks, securing two responses – Carter Bank and Trust of Martinsville, VA and Capital One Public Funding. Davenport recommended Carter Bank and Trust based on their lower interest rate (2.75 percent, which included all fees) as well as allowing the county the flexibility to prepay the bonds in the future. Capital One quoted an interest rate of 3.55 percent.
“Based on the life of the loan (to end in 2028), you will save a total of $469,523,” Cole noted. “Be reminded that a portion of those savings – $174,820 – deals with your local schools, the majority of that debt is paid for through restricted sales tax, so you will have to work that out with your local school board if you want to use those savings in some other fashion.”
In a nutshell, Cole said the deal would allow Northampton to take the higher interest rates on the three bonds and replace it with a loan from a single bank with a fixed rate of 2.75 percent.
“The term of the debt is nearly identical to what it is today; we did have to get all the payments on the same day of June 1,” Cole said. “We have not extended the debt nor have we shortened it.”
The overall savings for the Enterprise Fund bonds will be $294,703.
The cost to close the loan with Carter Bank and Trust is $115,000. Davenport’s portion of that is $68,000. The county will add $115,000 to the loan to cover those costs.
Cole said that County Manager Kenneth Creque and County Finance Officer Dot Vick had approved going forward with this plan. The next step in the process is to gain the approval of the Local Government Commission. Their next meeting is scheduled for Aug. 6.
The only unique part of the plan is that an escrow account will need to be established in order to guarantee the entities that purchased the 2005 bonds their interest as promised.
“The investors that bought those bonds in ’05 were guaranteed the interest on those bonds through 2015,” Cole noted. “We’re going to refinance those bonds today, and we have to set up an escrow, money coming from your new lender, and in 2015 the people who own those ’05 bonds will actually get paid off. However, you will not have any ongoing debt obligations to those investors through 2015 because those bonds are legally paid off once you approve this.”
In a pair of decisions, the commissioners approved the selection of Carter Bank and Trust as its new lender and approved a resolution authorizing the issuance and sale of the three general obligation bonds.