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School savings eyed through refinancing
(by Tony Lange - March 14, 2012)
School savings eyed through refinancing
By TONY LANGE
The Solon School Board voted unanimously at their Feb. 27 meeting to refinance the remaining $3.55 million of a debt issuance from 2003.
During the next two months, district Treasurer Timothy Pickana is to generate all the financial information necessary to restructure the bonds and put them back on the market to be sold at a lower interest rate.
Depending on the locked-in rate at the time of the settlement, the school district's taxpayers could save roughly $300,000 to $350,000 during the remaining life of the debt issuance, which expires in 2023, he said.
"Anything we can do to help reduce the tax liability of our taxpayers is the right thing to do, and so we're taking advantage of that opportunity," Mr. Pickana said. "So right now, as we're doing all the paperwork ahead of time that's related to a bond refinance, we need to lock into the rate before we know exactly what the savings will be."
While the 2003 debt issuance approved by the taxpayers had an initial value at $6 million, the bonds sold for that debt now are callable, he said, and, with economic factors, it makes sense to take advantage of that series of bonds.
Reiterating that, School Superintendent Joseph V. Regano said, "The bond holders who bought the bonds knew they were callable at some point, and that was a risk they took when they bought the bonds."
Callable bonds have a certain period or point in time when investors can be called out of an issuance early, Mr. Pickana said.
"For example, let's say that you were interested in buying an investment that is going to mature at July 1, 2014, and it's going to pay you 4 percent," he said. "It might be callable at July 1, 2013, a year earlier, at which point you might, depending on the issuance, receive that 4 percent that you agreed upon, but you wouldn't receive it for that final year, because your investment has been called and the investment would be paid out at the point."
Along with the refinancing process, there is the possibility of a bond-rating review for Solon schools in order to give potential investors a better feel with an up-to-date rating, Mr. Pickana said.
Currently, Solon has a Moody's Aa1 rating, which is one notch below the highest rating of an Aaa. Only 10 school districts in Ohio have an Aaa rating, while 18 have the Aa1 rating. Moody's rates 245 districts statewide.
Solon also has an AAA rating by Fitch, which is the highest.
While most schools have one rating, Solon has the double rating, because some investors prefer or are more familiar with one over the other, Mr. Pickana said.
We like to have both ratings, because some investors or some individuals who might be interested in buying might personally be more comfortable with the Fitch rating than a Moody's rating or vice versa," he said. "So we believe it strengthens our position and makes potential investors more comfortable with having that dual rating."
Solon schools have generated a number of debt issuances during the last decade or so to help refurbish buildings and undertake various capital-improvement projects, Mr. Pickana said.
In 2009, school officials also took advantage of a debt issuance refinancing opportunity, but that only ended up saving a couple percentage points, Mr. Pickana said.
"It was still savings nonetheless," he said. "This time, again depending on the interest rates when we settle, we will range between a possible 8 to 10 percent savings. It's all timed to the economy when you have to issue that debt and what rates are then compared to what rates are in the market now available."
The estimated $300,000 to $350,000 savings might not be noticed by taxpayers, because it's spread out over 10-plus years, Mr. Pickana said.
"So, if you divide that by 10, you're talking about an ultimately smaller amount, $30,000 to $35,000, that may or may not be noticed by the taxpayers on their tax bill," he said. "It could only be realized by the taxpayer through a possible reduction in their millage."
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