Summary
To: Town Commission
From: JP Murphy, Town Manager; Stefan Massol, Finance Director
Date: 9/17/2019
______________________________________________________________________
Subject:
Title
Discussion and Evaluation of BB&T Revenue Bond Refinance
Summary:
Staff will present updated information relevant to a refinancing decision for the Town’s Revenue Bond with BB&T.
End
Body
Previous Commission Action: Town Commission previously determined that the Town should explore a refinance with the assistance of a financial advisor. Staff subsequently re-engaged Jay Glover with PFM to serve as the Financial Advisor on this re-issuance. Brian Fender with Gray-Robinson will again serve as bond council, given his familiarity with both issues.
Background/Problem Discussion: A recent and significant reduction in interest rates has resulted in increased demand for municipal debt. In response to this market condition, staff is recommending that the Town pursue a refinance of its current revenue bond through BB&T. At the close of FY 2018-19 there will be a remaining principal balance of $7,705,000 eligible for prepayment. The current interest rate is 3.61%, and prepayment would be subject to a 1% penalty of outstanding balance ($77,050). It is estimated that the current market interest rate would be somewhere between 2.5% and 3%, resulting in interest savings to the town ranging from $700,000 to $1.400,000. This assumption is based on scenarios of 20 years at borrowing of $12,000,000 when compared to the current rate of 3.61%.
BB&T has submitted an offer for refunding, as well as a new money loan which combined would total the $12,000,000 of borrowing requested by the town. The interest rate they are offering is 2.46%. This rate is lower than the estimates provided by the Town’s financial advisor. This loan would only be for a 15-year term. Also, BB&T has waived the pre-payment penalty for the original issuance and provided more favorable options for prepayment on the new issue. The prepayment options would be either non-callable for the first five years, with no prepayment penalty for the remainder, or a 1% prepayment penalty for the first seven years then no penalty thereafter.
The Town has the option to either accept BB&T’s offer or to pursue a Request for Proposals from all banking institutions. Attached are copies of the offers submitted by BB&T.
Financial Implications: BB&T is offering an interest rate of 2.46% over a 15-year term. Interest cost over the term would be $2,451,000, which is a savings of $1,145,000 from the same loan at our current interest rate. Average annual payments for debt service would be $909,000 annually, which is approximately $200,000 more than our current annual debt service payment on the $10,000,000 bond.
Recommendation: That the Town accept/deny BB&T’s offer for a 15-year term at 2.46%
Proposed Motion: I move that the Town accept/deny BB&T’s offer for a 15-year term at 2.46%.