Market flux puts bond refinancing on hold
Macomb County will hold off for now on refinancing a large portion of a $263 million bond issue five years ago due to a fluctuating market.
County Finance Director Stephen Smigiel told the county Board of Commissioners at a meeting last week the initial attractiveness of low interest rates has waned.
“The supply of buyers has diminished to a point where the remaining buyers in the market are demanding higher yields,” Smigiel told the board during a meeting held in the County Administration Building via a remote video system due to the COVID-19 pandemic response.
Smigiel in mid-March gained expedited approval from the board to begin pursuing the refinancing for about $200 million of the bond issue. He secured contracts with the original “team” that helped the county issue the 20-year bonds in 2015 to pay for lifetime healthcare of retirees: J.P. Morgan, PFM Financial Advisors and Dykema Gossett law firm.
Smigiel told the board March 19 the county could get much lower interest rate – as low as 2 percent — than it is paying on various bonds in the issue, from 3.9 to 4.4 percent.
That would save the county about $400,000 per year for the remaining 15 years.
However, the rates have not remained so low as the market fell and has recovered slightly over the past amid the coronavirus crisis.
Still, Smigiel said officials should continue to monitor the situation and move to refinancing at some point.
“My feeling on it is that as long as there is an annual cash savings that’s able to cover the costs, it’s worth it,” he said. “I say we move forward as long as we’re saving overall.
“When the markets stabilize, we can move.”
The total cost would be about $616,000, with $433,000 going to J.P. Morgan, $125,000 going to PFM and $60,000 going to Dykema Gossett.
Board members seemed to be in favor of Smigiel’s strategy. The board voted to “receive and file” the issue.