Parameter Resolutions to Refinance Bonds (June 2012)
On May 15, 2012, the City Council held a town meeting regarding the possible refinancing of two bonds – the golf course general obligation (GO) bond and one of the pressurized irrigation bonds (PI2). This possible refinancing would be done to obtain lower interest rates, which are available due to a recent increase in the City’s bond rating.
The PI2 bond has an approximate balance of $900,000. The current interest rate is 5.99%, and the bond cannot be called without a penalty. Wells Fargo is willing to refinance this bond and is offering two options:
- Fixed rate of 3.08% for the first seven years, variable rate after that
- Fixed rate of 2.92% for the first five years, variable rate after that
Both options would allow the City to call the bond at anytime without penalty. Having a lower interest rate would save money, but the risk is not knowing what the variable rate would be after the fixed rate expires. The Council is exploring options, and additional research is being done by the City’s Finance Department and Golf Course Advisory Finance Committee.
The GO bond for the golf course was issued and sold in the public markets with no ability to prepay for ten years. Mr. Edminster, the City’s financial advisor, recommends waiting at least five months before refinancing this bond, due to negative arbitrage concerns. If refinanced, the savings realized can either be taken up front for one year or in small annual amounts over the life of the loan. This savings would be realized through a reduction in property taxes.
During the City Council meeting on May 15, the Council voted to approve parameter resolutions for the refinance of both bonds. The parameter resolutions do not approve or require the City to refinance either bond; they simply start the process so a public hearing can be held. Download the resolutions:
Additional information will be provided to residents as the Council explores all of the options available. Any questions or comments can be directed to the Mayor or City Council.