Refinancing could save $647,143 in Millstone

Millstone

MILLSTONE - The Board of Education unanimously agreed at its Nov. 13 meeting to the advance refunding of $22.7 million in outstanding obligations.

Business Administrator Brian Boyle explained that the school district issued $34.5 million worth of bonds in 2004 to pay for the new middle school. Last year, more than $9 million of those bonds were refunded. The bonds to be refunded this year, he said, are the remainder of the bonds that were issued in 2004.

The purpose of refunding is to reduce debt service requirements and, consequently, property-tax requirements, according to Boyle. The refunding would save an estimated $647,143, he said.

The bonds previously refunded had payments due from 2026 to 2030, Boyle said. The remaining 2004 bonds are redeemable in July 2013, with payments due from 2014 through 2026, he said.

Since the bonds cannot be called, the owner does not have to turn them in until 2013. Because there is not a new mortgage schedule, Boyle said amortization would conform to the maturity schedule of the existing bonds, which is 2007-2030.

Boyle said the average coupon for the 2004 bonds to be refunded is 4.79 percent, and the maximum interest rates for the new issue would be between 3.58 percent and 4.08 percent.

Board member Sergio Galindo, whose professional background is in finance, asked Boyle if he expects interest rates to go down 1.25 percent. Boyle said that was the expectation of the school district's financial advisers in an October analysis, but that it is "always a snapshot in time."

Boyle said it is a still a low-interest-rate environment, relatively speaking.

Galindo said he thought rates had gone up. Boyle responded that the October analysis showed that the district would save money.

"We wouldn't do it if we weren't going to save money," he said.

When Galindo suggested it may be better to wait for rates to drop, Boyle said, "If you know when that is going to happen, you tell me."

Boyle said that by law, the district must realize at least a 3 percent savings or the Local Finance Board (LFB) would not approve the sale. He said the LFB approved the proposed sale last week.

Although the board has up to one year to transact the sale, it expects to close in January, according to Boyle.

While the district has up to a year, Galindo said he is concerned that the broker could take the opportunity to close and cash in by January. Boyle said the board's financial adviser has control over that.

"We could save $800,000 next year, but some political or world issue could happen," Boyle said, "and instead of saving $640,000, we save squat.

"In my opinion," he added, "I'd rather take what I can get now."

Boyle said the district expects an AA rating from Standard & Poor's, a division of The McGraw-Hill Cos. The district would pay the issuance cost through the refunded bonds.

Since the sale of bonds would be a negotiated rather than a competitive sale, Boyle said it allows for more flexibility in the marketplace. The sale would only take place if the interest rates result in a reduction of debt service, he said.

Boyle said he has full faith and confidence in the district's financial advisers.

Board President Mary Ann Friedman commented that the board did well in the past with regard to how its financial advisers worked things out.