With interest rates dropping and the possibility of saving about $1.6 million, the Abilene Board of Education adopted an authorizing resolution to refinance a portion of the 2014 bond issue.
The bond issue, approved by Abilene school district patrons in April 2014, raised about $24.2 million to finance districtwide school improvements. The project included the construction of Dwight D. Eisenhower Elementary School — which was Abilene’s newest school in 40 years, adding new additions and renovating existing areas at Abilene High School and Abilene Middle School, and renovations and other changes at Kennedy and McKinley elementary schools.
After hearing a presentation Monday might from Clayton Kelley with Piper Jaffray, the district’s bond counsel, the board approved the resolution authorizing the sale of taxable general obligation refunding bonds, series 19 of USD 435.
The refinancing includes only the maturities of three years — 2037, 2038 and 2039. The portion of the bonds refinanced will be accelerated and repaid in 2036, meaning the district is paying off the debt three years sooner than originally planned.
Interest rates drop
The reason for the refinancing is due to the drop in interest rates. By refinancing the debt, the district could potentially save $1,559,666, assuming current interest rates remain at approximately the same level, Kelley said.
“Something we do when evaluating interest rates is look at the outstanding debt of different districts throughout Kansas,” Kelley said, explaining that the Piper Jaffray staff checks to see if there’s a potential for savings for the district.
“Interest rates are starting to near all-time lows, like back in 2016,” Kelley said. “Interest rates have only been lower than they are currently 0.76 percent of the time.”
The average interest rate on the current bonds is 3.55 percent. The projected interest rate after refinancing is 2.82 percent.
As part of the analysis, bond counsel examines the district’s historical information in terms of assessed valuation and state aid to get an idea of growth and then projects that going forward.
“Your state aid for bonds authorized prior to July 1, 2015, has been growing since 2013, and that’s coupled with assessed valuation growth — what that means is enrollment is also growing,” Kelley said. “The way the state calculates state aid is based upon assessed valuation per pupil.
“If your assessed valuation grows, you potentially lose out on state aid if your enrollment stays the same or drops, but if your enrollment grows at a higher rate than your assessed valuation, you can capture more state aid to help pay debt service on your bonds. It’s a good trend for the district,” he said.
The district’s mill levy history, how the district is performing and what the district is levying also is part of the analysis
The resolution approved last week gives Piper Jaffray staff the green light to start the process, which includes obtaining the district’s S&P (Standard and Poor’s) bond rating. The S&P rating affects the interest rate the district will pay on its reissued bonds.
Kelley said he thinks the district has an “outstanding” A rating.
“Anything that’s over A rated, investors view as very favorable. It’s something they see as more secure,” Kelley said.
Board member Gregg Noel asked about a $10,000 fee to obtain the S&P rating.
Kelley said the fee would be charged to the district only if the board decides not to refinance for some reason or interest rates were to skyrocket and the projected savings would not be realized.
“If we go forward with it and we capture the savings we need or you feel comfortable with it, that rating fee is thrown into the financing so there’s no operating cost,” Kelley said.
Board member Mark Wilson asked why they were not refinancing the entire bond. Kelley explained that the 2014 bond issue has numerous bonds with different maturity dates and said bonds can be refinanced only once. If all bonds were refinanced now and interest rates were to drop even more, the district could not take advantage of that lower rate.
However, the district has the potential to refinance other bonds in the future.
“We don’t feel comfortable for the district to lock everything in right now,” Kelley said. “There’s still time to get a better interest cost between now and the next three or four years.”
The board is scheduled to hear the results of the bond offering in October.
Contact Kathy Hageman at email@example.com.