Approved refinancing is not ‘fake savings’

LANSDALE >> The savings aren’t quite locked in yet, but Lansdale’s borough council has now taken every step necessary to do so.

Council voted unanimously on July 17 to authorize the refinancing of a 2014 bond borrowing, giving a consultant permission to seal the deal early next month.

“So long as we don’t go outside the parameters, and the savings is correct, we’ll execute this on or about the fifth of August, and that will be the day everything gets locked in,” said bond adviser Ed Murray.

“It’s important to note that we’re not extending the debt. This is matching debt service. It’s not fake savings, it’s really apples to apples, not lengthening it to drop the payment,” he said.

Lansdale’s borough council voted over the past decade to authorize bond borrowings for cap

ital projects of $10 million each in 2010, 2012 and 2014, then a smaller bank loan borrowing of $2.5 million in 2017, at the same time as the two earliest bonds were refinanced. Staff began talks in early June on the possibility of refinancing most of the 2014 issue now that five years have passed, in order to lock in new lower interest rates instead of maintaining a payment schedule that had rates slated to climb starting in 2020.

Murray outlined the specifics during council’s July 17 meeting, saying the total savings over the life of the refinancing are projected to be roughly $803,000, with a net present value of $626,000.

“The cost of issuing the bonds is already baked in, and that’s your actual, net savings, that would accrue to the borough,” he said.

Payments on the roughly $9 million to be refinanced from the 2014 bond would be wrapped around current obligations, Murray told council. The motion approved unanimously by council granted the authority to Murray and borough Finance Director John Ramey to finalize the sale of the bonds so long as the necessary market conditions, producing savings of at least four percent of the total to be refinanced, are met.

“This is just pure savings: lower interest rates, good solid credit, good solid management, good conservative budgeting that allows for this,” Murray said.

“I think we’ll see a very, very good reception from the bond market. The people who buy bonds will be very interested in buying these bonds,” he said.

Councilman Jack Hansen asked for details about the repayment schedule for the new refinancing against the two earlier borrowings, and Murray replied with details. The 2010 bond issue was refunded in 2015, and the 2015 borrowing will be callable starting in April 2020, which could mean additional savings at that time.

“If interest rates stay the way they are, I’ll probably be back, asking you to do the same thing” with the 2015 borrowing in 2020, Murray said.

“You can call those on April 1, 2020, and they currently have savings in them as well,” he said.

Hansen thanked the bond adviser for his work over the years, and said he hopes the savings keep coming in the future.

“I have to say, I really like saving money for the people. The borough needs all the help it can get, and thanks Ed — you’ve done an outstanding job for us,” Hansen said.

Lansdale’s borough council next meets at 9 p.m. on Aug. 7 with the administration and finance committee meeting at 7 p.m., both at the borough municipal building, 1 Vine St. For more information visit www.Lansdale.org or follow @LansdalePA on Twitter.