A move by the county to refinance bond issues was expected to save around $4 million in outstanding debt obligations. After several months, the results of the project are in and the savings for Sampson will be well in excess of $6 million.
Finance officer David Clack detailed the potential of cost savings available through the refinancing of certain long-term county debt in January, notably the 2006 Certificates of Participation and the Water District II General Obligation Bonds. In March, the board officially adopted resolutions to move forward with the process.
At Monday’s meeting, Clack provided a report on the successful results.
“I would like to start by thanking all of those involved in making this project the success it was,” he said, naming the Board of Commissioners amongst others, for authorizing staff to proceed in an expeditious manner. “That allowed us to take advantage of market conditions which allowed us to save quite a bit more money than what we (estimated) in January.”
He also credited vendors, bond counsel, underwriters, the Local Government Commission, administrative staff and others.
“When we originally presented this opportunity to the board, we anticipated refunding only a portion of the 2006 COPs issue,” he said.
Clack stated in a December memo it was anticipated that refunding would include USDA debt on the Public Works offices and the General Obligation debt of Water District I. After running the numbers, it was decided that the county would not recognize a savings on those issues, so they were not refunded.
He crunched the final tallies for commissioners, which ultimately amounted to a total savings of $6,337,826 over the life of the bonds.
“Just this past month, we sold $40,410,000 in limited obligation bonds to refund the outstanding 2006 Certificates of Participation that we used for school construction,” Clack offered.
He previously said that the underwriter proposed refunding the 2006 COPs with a principal amount of $31.8 million. The full amount outstanding is roughly $47.2 million.
“The true interest cost on the new bonds is 3.25 percent, as compared to 4.43 percent on the original bonds. The result is a total cashflow savings over the remaining 21-year term of the bonds of $4,795,397.”
The annual savings range from a low of $166,353 to a high of $236,503.
In January, Clack estimated total cashflow savings of about $2.6 million, with an estimated interest cost of 3.37 percent. The rates were lower, and with a higher amount of the COPs issue refinanced, the savings ballooned.
“The sale has gone through and the closing date for this will be June 3, 2015,” Clack stated.
Weeks later in April, the county sold $9,990,000 in General Obligation bonds for all the issues for Water District II — six in total, with interest rates ranging from 4.25 percent to 5.13 percent.
“Our true interest cost for the new issue is 3.7 percent,” said Clack. “The lower interest rate results in a cashflow savings of $1,542,429 over the remaining 29-year term of the bonds.”
Annual savings range from a high of $72,778 to a low of $8,348 over that span.
During the January meeting, Clack estimated savings of close to $1.6 million, but that included refunding Water District I. The closing date for that sale is May 28, 2015.
In all, annual savings due to the refinancing will hover around the quarter-million dollar mark.
The county previously entered into an installment purchase contract in November 2006 with the Sampson Area Development Corporation in order to pay the capital costs of constructing Union High School, Midway High School and Charles E. Perry Elementary School, as well as renovating certain existing city and county school facilities.
“None of these refundings extend the debt on any issues,” the finance officer stated. “These issues will still be paid off virtually the same way they would’ve been. We were able to take advantage of the low interest rates and have the cashflow savings this represents.”
County staff noted that it moved forward with the financing based solely on the county’s bond ratings from both Standard & Poor’s and Moody’s.
“This is a first for Sampson County,” Clack noted, “as previously we purchased insurance to guarantee bond payment and relied on the rating of the insurance company to sell the bonds.”
Causey offered some perspective.
Now county manager for five years, Causey was with USDA the last time Sampson County took bond issues to the open market (it is able to refinance bond issues after 10 years), the county had to buy insurance to get a bond rating — that cost $473,000.
“This time Standard and Poor’s and Moody’s rated you an A and an A1,” Causey said. “That is your first time out to get a bond rating when you didn’t have to buy insurance. That tells me somebody has done something right.”
He lauded Clack, as well as the foresight of the board, which he noted should be “extremely proud for what you’ve accomplished.” The bond companies recognized the county’s strides in recent years, its staff experience, building capital reserve accounts, a water production system, its strong relationships with grant agencies as well as the board’s other long-term approaches for the future, such as the pay implementation plan and economic development projects coming down the pipe.
“We have been up and down and all around on our financing,” the county manager said. “This board needs to be congratulated. This board is sitting on a high post tonight because of the things it has done in recent years.”
Causey said the county is not out of the woods by any means, but the news of the county’s strong bond rating and the savings it has brought through the bond refinancing, was positive to say the least.
“Having the A bond rating is one of the remarkable things that I have been privileged to observe since I’ve been with the county,” Causey commented. “I think that is a good indicator that this board is making decisions … (that are) laying the groundwork in moving forward.”
Commissioners took turns thanking Clack and the rest of the staff.
“It is quite a feat to have an A bond rating by Standard & Poor’s and that speaks volumes for a small rural county,” said Commissioner Clark Wooten, praising the entire administrative staff. “It shows what happens when good people roll up their sleeves and do the work. I’m proud of that. It’s very impressive and I appreciate all of your hard work. Those are significant savings.”
Wooten said he found it hard to believe interest rates would stay as low as they are currently, and credited county staff’s timing. Clack concurred it was likely that the rates would being creeping up in the near future.