City Looks To Save Money On 2011 Bonds
August 4, 2020 at 4:19 a.m.
City Looks To Save Money On 2011 Bonds
By David [email protected]
Mayor Joe Thallemer told the council that bond attorney Randy Rampola from Baker Daniels would walk them through the Warsaw Sewage Works 2020 Refunding Bonds.
“This is one of the suggestions that has been made in past comprehensive financial reports, and if we can take advantage of lower interest rates to save on our payments, certainly it has to balance out with the expenses that it costs to refund these bonds,” Thallemer said.
Rampola said the ordinance “effectively allows you to refund the outstanding 2011 bonds. Those bonds have a redemption provision that allows them to be redeemed on Jan. 1, 2021. So under current federal tax law, that means you can issue refunding bonds on Oct. 1 or thereafter.”
The money from the new bond issuance would be used to repay the outstanding 2011 bonds, he said.
He explained that when you refund a bond issue, it’s similar to refinancing a mortgage. What the council would be doing is replacing the 2011 bonds with 2020 bonds at a lower interest rate to produce savings. The bonds the city has outstanding include the 2011, 2013, 2015, 2017 and 2018 bonds.
“The ordinance sets out that the bonds would be issued at a maximum principal amount of $3,680,000. That would be essentially just to cover the costs of the refunding and the cost of issuing the bonds. The maximum interest rate would be not to exceed 4%,” Rampola said.
He said with market rates the way they are, they expect the interest rate to come in significantly lower than that.
The ordinance does provide that the bonds would be payable in a schedule similar to the outstanding bonds, “meaning that the final maturity on the bonds would be the same as the existing bonds,” he said. The 2020 bonds would not mature later than Jan. 1, 2032.
Rampola said they hoped the bonds would be sold to a local bank, which would help save money on the selling and issuance of the bonds.
Alex Hindle, with accounting and consulting firm Baker Tilly Virchow Krause LLP, said they’ve already began reaching out to the banks in the area and got a pretty good response.
He said it’s been a bull market for a while now, with interest rates around 2% or lower, especially for shorter-duration bonds like these.
If the city gets about a 2% interest rate on the bonds, Hindle said the city would be looking at $20-$25,000 a year in savings, or $250,000 in net value savings over the life of the bonds.
“It’s a pretty good level of savings there. Definitely in the range that’s worth pursuing,” he said.
Councilman Mike Klondaris asked how much was the outstanding balance on the 2011 bonds. Rampola said it was $3.1 million. To clarify, Klondaris said the council would be refinancing $3.1 million at about 1.5-2%, and Rampola said that was correct.
Klondaris eventually made the motion to approve the ordinance on first reading, which was seconded by Councilwoman Cindy Dobbins and unanimously approved. The council then approved to suspend the rules and unanimously approved the ordinance on a second reading instead of waiting until its next meeting.
Mayor Joe Thallemer told the council that bond attorney Randy Rampola from Baker Daniels would walk them through the Warsaw Sewage Works 2020 Refunding Bonds.
“This is one of the suggestions that has been made in past comprehensive financial reports, and if we can take advantage of lower interest rates to save on our payments, certainly it has to balance out with the expenses that it costs to refund these bonds,” Thallemer said.
Rampola said the ordinance “effectively allows you to refund the outstanding 2011 bonds. Those bonds have a redemption provision that allows them to be redeemed on Jan. 1, 2021. So under current federal tax law, that means you can issue refunding bonds on Oct. 1 or thereafter.”
The money from the new bond issuance would be used to repay the outstanding 2011 bonds, he said.
He explained that when you refund a bond issue, it’s similar to refinancing a mortgage. What the council would be doing is replacing the 2011 bonds with 2020 bonds at a lower interest rate to produce savings. The bonds the city has outstanding include the 2011, 2013, 2015, 2017 and 2018 bonds.
“The ordinance sets out that the bonds would be issued at a maximum principal amount of $3,680,000. That would be essentially just to cover the costs of the refunding and the cost of issuing the bonds. The maximum interest rate would be not to exceed 4%,” Rampola said.
He said with market rates the way they are, they expect the interest rate to come in significantly lower than that.
The ordinance does provide that the bonds would be payable in a schedule similar to the outstanding bonds, “meaning that the final maturity on the bonds would be the same as the existing bonds,” he said. The 2020 bonds would not mature later than Jan. 1, 2032.
Rampola said they hoped the bonds would be sold to a local bank, which would help save money on the selling and issuance of the bonds.
Alex Hindle, with accounting and consulting firm Baker Tilly Virchow Krause LLP, said they’ve already began reaching out to the banks in the area and got a pretty good response.
He said it’s been a bull market for a while now, with interest rates around 2% or lower, especially for shorter-duration bonds like these.
If the city gets about a 2% interest rate on the bonds, Hindle said the city would be looking at $20-$25,000 a year in savings, or $250,000 in net value savings over the life of the bonds.
“It’s a pretty good level of savings there. Definitely in the range that’s worth pursuing,” he said.
Councilman Mike Klondaris asked how much was the outstanding balance on the 2011 bonds. Rampola said it was $3.1 million. To clarify, Klondaris said the council would be refinancing $3.1 million at about 1.5-2%, and Rampola said that was correct.
Klondaris eventually made the motion to approve the ordinance on first reading, which was seconded by Councilwoman Cindy Dobbins and unanimously approved. The council then approved to suspend the rules and unanimously approved the ordinance on a second reading instead of waiting until its next meeting.
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