Franklin County commissioners Monday said they are moving forward with refinancing roughly $39.25 million in bonds issued in three series over the past seven years to pay for building roads and buildings.
Julie Portman, Edward Jones investment banking principal, said the county could save almost $2.1 million by refinancing all three series, even though only one has reached its first-call date, the earliest date in which a series can be refunded.
The county issued the certificates of participation — bonds which don’t require voter approval because their repayment is an annual appropriation and not backed by guaranteed property tax revenue — on three separate series. In 2005, the county borrowed $6,910,000. In 2007, $18,450,000 was borrowed. The final series was issued a year later for $13,885,000.
The 2005 series is currently callable, Portman said. The 2007 series will be callable in March 2013. The 2008 series won’t be callable until 2014. Each series is callable after five years, a feature commissioners said they’d like to have in the potential new series as well.
That means that in order to refinance the 2007 and 2008 bonds now, the county will have to put the money promised to bondholders until those first call dates in escrow.
Portman said the savings estimates take into account the costs of escrow and reissuing the bonds — which would be combined into a single 2012 series instead of three separate series.
The cost to the county to refinance all three series would be about $500,000, she said.
“We’re lowering our payments and our interest rates. It is a win-win. We’d be crazy not to do this,” Presiding Commissioner John Griesheimer said.
Refinancing would allow the county to lower its annual debt service payments while paying off the bonds in about the same length of time — around the year 2030.
Prepayment Likely Out
Previously county commissioners and other officials discussed options for paying down the county debt.
Auditor Tammy Vemmer said the county could pay down the 2005 series without refinancing simply by paying a $150 fee.
Commissioners were enthusiastic about the idea at the time, but Griesheimer later expressed reservations, noting that the discussion on refinancing started with the goal of lowering the county’s payments in the near future in mind.
Vemmer said the payment schedule currently includes sizable increases in the next several years.
On the 2007 series, the county’s payment will go from $885,286.25 this year to $1,264,117.50 in 2013.
The 2008 series will see a smaller increase from 2012 to 2013, roughly $52,000. The 2005 series debt obligation will increase less than $5,000 from its current level next year.
Portman said the increases are structured how commissioners at the time wanted them — with a yield curve of interest rates meant to conservatively anticipate sales tax growth.
For the past several years, the county saw not growth, but declines in sales tax revenues. While 2011 was up from 2010, total revenues of roughly $15 million among the county’s four sales taxes have yet to climb back to the levels before the country’s most recent recession.
On Monday, Commissioner Terry Wilson and Griesheimer both said they’re no longer comfortable using county building fund reserves, which total about $8 million, to pay down the principal on the bonds because of recent cuts in state funding.
Commissioners had been waiting until the end of the current state legislative session later this month to see if a bill which would restore part of the funding cut from counties and cities on motor vehicle sales would pass.
Griesheimer said Gov. Jay Nixon told Missouri Association of Counties officials he would veto any such bill.
Griesheimer estimated previously that the cuts would cost the county over $1 million in sales taxes a year.
The county already is using that fund money to make the payments. Griesheimer said the county took roughly $700,000 this year from the fund.
Two Separate Issues
Portman said refinancing and paying down principal with reserves are “two separate issues.”
Vemmer indirectly said she was in favor of paying down the debts with reserve funds, but not in refinancing, noting that “$28 million in interest is a lot of interest.”
Portman told commissioners that “100 percent of (certificate of participation) issues get refinanced by their first-call date. Everyone is capturing the lower interest rates.”
Under the current roughly 30-year bond amortization schedule, the county will pay $29,014,464.01 in interest on the $39,245,000 borrowed.
County Clerk Debbie Door said county officials never intended to stick to the 30-year schedule, intentionally establishing a five-year first-call date.
A new 2012 series would include another five-year first-call, Portman said.
During those first five years, the county would see the largest interest rate decreases from its existing schedule.
On the 2005 series, rates would decrease from 3.5-3.81 to 0.75-1.8 percent from 2013 to 2017. The 2007 series rates for the same period would drop from 3.55-3.88 percent to 0.75-1.8. The 2008 series rates would decrease from 3.5-4.1 percent.
Vemmer said if the county refinances, it could establish a clause to allow for a $75,000 annual principal payment using money the county receives from the law library.
On Monday commissioners agreed to have Portman and Edward Jones personnel prepare and price a new bond issue which would be used to refund the three existing issues.
Interest rates could fluctuate during the next four to eight weeks while the work is being done, Portman said, but based on projections made within the past week, interest rates would be more than 2 percent lower on all of the bonds across all three existing series over the next five years.
Commissioners said they’re interested in refinancing so long as there is a savings, net of all the costs of refinancing, of at least 2.5 percent on each of the outstanding series.
Based on Portman’s figures, the county could save 6.3 percent in current net present value savings by refinancing the 2005 series, 3.5 percent on the 2007 series and 4.3 percent on the 2008 series.