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City looks at refinancing $17 million in debt
By Mary Madewell
Published October 30, 2009
The City of Paris stands to gain $1.627 million in interest savings on bonded indebtedness by refinancing about $17 million in debt, according to information presented at a meeting earlier this week.
Financial adviser Dan A. Almon of Southwest Securities Group of Dallas made a bond refunding analysis presentation to council members Monday. Council took no action but asked city staff to place the item on a future agenda.
One of the requests asked of staff was to prepare information about each bond issue currently on the books and to determine if a refunding of debt would extend principal payments.
“The refunding of bonds wouldn’t go past the end date of current debt,” city finance director Gene Anderson said Thursday. “And even if it did we would still see a significant amount of savings because of the current economic climate.”
That question was raised Monday by Councilman Will Biard.
The bond market dropped to its lowest rate in recent history during October when Almon made his determination that the city could save at least 9 percent on interest payments with a reissuance of bonds.
“You are at 9 percent savings and we usually begin looking at refinancing debt at 3 percent,” Almon said Monday. For more than 20 years Almon has served as the city’s financial advisor. Almon said even if interest rates increase by the time refunding is complete the savings still would be substantial.
“He keeps a watch for Anderson said.
Figures based on the bond market in October indicated Water and Sewer bond refunding would produce $974,302 in interest savings with general obligation bonds producing another $652,514, according to Almon’s analysis. Anderson said potential savings reflect actual savings to the city with all costs associated with refunding considered.
Almon said the city could look at taking out insurance but only if an improved bond rating would produce additional savings. The city’s current Moody rating is an A2 for general obligation bonds and an A3 for water and sewer revenue bonds. Insurance could bump the rating to a higher rating —AA or AAA — but the difference in the interest rate might not produce enough savings to pay the cost of insurance.
“It doesn’t look like insurance would produce enough savings based on the current bond market,” Anderson said.
Anderson said he is pleased with the current ratings, which are based on an in-depth analysis of the city’s financial conditions as well as general economic conditions. A Moody’s analysis produced in July this year reaffirmed an A3 rating on water and sewer bonds.
Anderson said bond rating companies take many things into consideration.
“They look at my financial analysis to see if sales tax collections are up or down; our property tax collections and our debt ration to fund balance and how we stand on pension plan funding,” Anderson said. “In general, the ratings indicate a city’s ability to pay back debt.”
Anderson said the city is in a much stronger financial position than it was three to five years ago.
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