Council reviews details on $225K savings possible from refinancing

Borrowing could get formal OK from council in February

LANSDALE >> The numbers might not be as big as prior times, but Lansdale Borough could still score significant savings this year by refinancing bonds.

Council heard details Wednesday night on roughly $225,000 in savings possible by refinancing the debt left from three bonds taken throughout the 2010s.

“It’s not a good time to be a saver, but it’s a great time to be a borrower,” said bond advisor Ed Murray.

Borough council voted over the past decade to authorize bond borrowings for capital projects of $10 million each in 2010, 2012 and 2014, then a smaller bank loan of $2.5 million in 2017, at the same time as the two earliest bonds were refinanced. Staff began talks last summer on refinancing most of the 2014 issue, locked in lower rates in July of that year, and Murray returned with details Wednesday night on more savings possible by refinancing the rest.

“This is not one of the greatest deals out there, but that’s only because the borough has been fortunate to issue bonds at very, very low interest rates to begin with,” Murray said.

“There’s not a lot of time left on these bonds, there’s just a few years left, but the interest rates are different enough that it generates savings,” he said.

On the 2010 issue, only two annual payments are left totaling roughly $710,000, Murray said, which he and his firm are recommending be rolled into a new 2020 refinancing. From the 2014 bond roughly $315,000 remains, in payments scheduled to be paid down through 2027, and an additional $9.3 million from the 2015 refinancing and scheduled to be paid back through 2026 would also be included.

“You can see, they’re very, very short: two (payments) in 2021, and then six maturities that go through 2026, so not a lot of time left over,” Murray said.

“By and large, we’re looking to save about $224,000 — that’s present value savings, after we pay the costs of issuing the bonds, plus the official documentation, doing all of that good stuff,” he said.

Those savings would take the form of roughly $30,000 per year in reduced interest payments by securing a lower interest rate now than those under which the borrowings were originally done, according to Murray.

If the refinancing is approved, the remaining payments on the 2012, 2014 and 2015 debt would be consolidated into a new 2020 issue. Still remaining would be roughly $11.4 million from the 2012 borrowing, an additional $2.6 million from the 2017 refinancing, and $13.5 million from the 2019 refinancing.

“We saved over $1 million the last time. In this case there’s just not enough time, and the interest rates are just not high enough” for similar savings, he said.

“If you said ‘Listen, it’s not enough savings,’ you could not do it, but then you’d be paying investors more than you need to. In this case, I’d like to refund them, and save you the money,” Murray said.

Each time market interest rates rise or fall by five basis points, that change translates to roughly $16,000 of annual savings or added costs on this size borrowing, according to the advisor. As he showed chart of historical interest rates falling steadily over time, then more steeply over the past decade, Murray told council that October 2019 brought the lowest municipal interest rates in more than half a century.

“We hit a 63-year-low in municipal interest rates. That means interest rates were not as low, as they were in October of last year, since 1956,” he said.

“Interest rates have been higher for about 99.778 percent of the time, higher than they are now, except for basically a cup of coffee last October,” Murray said.

With an informal consensus from council Wednesday night, next steps will include the advisor writing up a formal parameters resolution spelling out the market conditions that must be met for the refinancing to proceed, which could see discussion by council committees and then approval in February. Murray said he and his firm will also investigate bank loans, to see if market interest rates may be lower doing the refinancing via loan instead of a new bond.

“We’ll give you whatever saves the most amount of money, but if we can do it in a cheaper, faster way, we’ll try the bank loan,” he said.

Councilwoman Carrie Hawkins Charlton asked if the advisor had considered keeping the two remaining 2010 payments out of the refinancing, and Murray said those were included because the advisors are legally not allowed to extend the repayment periods on any outstanding debt.

Councilwoman Mary Fuller said she thought the $225,000 in total savings was “not shabby at all,” despite being lower than that from prior refinancing.

“I know it’s not $1 million, but there’s nothing to be ashamed of there: We’ll take $225,000 any day of the week,” she said.

Mayor Garry Herbert added that he thought council should keep those low interest rates in mind.

“What you’re saying is, now would be the very best time, in the last 50 years, to actually take debt out. If we were thinking of anything large-scale, now is the time,” Herbert said.

Lansdale’s borough council and the various council committees next meet at 6:30 p.m. on Feb. 5 at the borough municipal building, 1 Vine St.

“I know it’s not $1 million, but there’s nothing to be ashamed of there: We’ll take $225,000 any day of the week.” — councilwoman Mary Fuller

“It’s not a good time to be a saver, but it’s a great time to be a borrower.” — bond adviser Ed Murray