By Kim West
The Limestone County Water & Sewer Authority expects a gross savings of $540,000 by using a lower interest rate to refinance nearly $6.2 million in bonds issued in 2005 and 2006.
During Thursday’s board meeting, a resolution was approved 5-0 to authorize Thornton Farish in Montgomery, a bond underwriting firm, to move forward with a proposal for a bank-qualified refinancing of the eligible portions of the 2005 and 2006 bonds.
The resolution allows Thornton Farish to refinance a total of $6,195,000 in bonds with a locked-in interest rate of 2.99 percent and a maturity date of no later than Dec. 1, 2028.
In January, the LCWSA, which has an A-plus credit rating, agreed to refinance a 2004 bond issue for a present-day savings of $523,000, according to Thornton Farish accountant Scott Bamman.
On Thursday, the board considered a 25-minute presentation by Bamman to refinance more bonds. He said the LCWSA is allowed to refinance up to $10 million in bonds in 2013.
Due to market conditions, Bamman said the current interest rate to refinance a bond is about 3.5 percent. The LCWSA would get a 2.99 interest rate because he said the proposal was drawn up before “the bond market went to hell in a hand-basket.”
“Under IRS rules, (the LCWSA) can only refinance or refund certain bonds,” Bamman said. He added the proposal was a culmination of “what they allow us to do and what works best” for the LCWSA.
The total amount the LCWSA intends to refinance from the 2005 and 2006 series is $8,622,000. The bond reissue, known as Series B 2013, would reduce the overall debt service to $8,082,000 for a gross savings of $540,000. The savings includes 1.1 percent in bond issuance expenses, Bamman said.
Bamman, who used a colorful cost-savings handout described by one board member as a “Picasso chart,” said the savings would result from paying off the bonds a year earlier than their original maturity date.
“We’re shortening the debt service by one year. We can save $540,000 gross, or leave (the proposal) alone and do nothing,” said Bamman when asked about the merits of refinancing the bonds.