Wheaton School District saves $86K in bond refunding

Wednesday, November 4, 2015

Interest rate drops 2 percent over 5-year period

The Wheaton school district recently approved a general obligation bond refunding, resulting in net savings of over $86,000.

The bond resolution authorized the sale of $935,000 in bonds, at an average interest rate of 2.33 percent. Series 2007 bonds carried an average interest rate of 4.2 percent by comparison. The difference reduced the future interest expense to the district, and taxpayers, by $86,423.

"When we first financed these bonds five years ago, we had 4.5 percent, and we got those down to 2.5 percent," said Lance Massey, superintendent for the school district. "When you're talking about a couple million, a couple percent makes a big difference."

The $86,423 in interest savings, plus approximate savings of $100,070 from the Series 2012 refunding and $5,625 prepayment of the Series 2012 bonds, translates into savings of $192,118 to the district over the past three years.

Massey supported the refunding option selected by the board of education.

"This plan achieves good savings and provides an opportunity for the district to take advantage of low-interest rates, while maintaining flexibility for future no-tax increase proposals," he said

According to Brad M. Wegman, assistant vice-president of L.J. Hart & Company of St. Louis, Security Bank of Southwest Missouri purchased $290,000 of the bonds, which helped contribute to the success of the financing.

Massey said he was pleased efforts were made to accommodate local banks.

"It is nice that our marketing procedures facilitated this local involvement while still receiving attractive interest rates," he said.

Board President Lewis Royer relayed the $86,423 of interest savings for the Series 2015 refunding, an improvement of $8,478 from September projections, is not all the district may save due to the 2015 bonds having a call feature on March 1, 2018, at no penalty.

"If interest rates are lower in 2018 or later, we can take advantage of that," Royer said. "Meanwhile, we are locking in these levels that are nearly 1.87 percent lower than they were in 2007."

L.J. Hart prepared the refunding proposal, and Wegman explained how it can fit into the long-range plans of the district.

Wegman highlighted the three main factors which made the Series 2015 refunding possible: lower interest rates than in 2007; the Series 2007 bonds are subject to prepayment on March 1, 2017, at no penalty; and the district's ability to participate in Missouri's direct deposit program.

The program makes it possible for the district to receive an AA+ rating from Standard & Poor's Corporation on the refunding bonds.

L.J. Hart & Company commended Massey for being thorough and prompt in his preparations to supply the necessary data for the rating application and official statement, as well as the board of education for their foresight in making the Series 2007 bonds callable in 10 years.

Proceeds from the Series 2015 refunding bonds will be placed in an escrow account with UMB Bank, N.A. and reinvested in U.S. Treasury Securities.

The earnings from the account meet the interest payments on the callable Series 2015 bonds through March 1, 2017, then produce the $935,000 necessary to prepay (call) the Series 2007 bonds on that date.

The Series 2015 refunding bonds were underwritten by L.J. Hart & Company. The closing for the bond issue will occur on Nov. 19.

Board members also commended Massey and L.J. Hart & Company for developing the refunding plan.

"It is nice to be able to save $86,423 of our taxpayers' money, while receiving strong support from Security Bank of Southwest Missouri," said Dan Goostree, vice-president of the board.

Legal documents to complete the issuance of the bonds were prepared by John W. Brickler, Esq. of Spencer Fane LLP in its role as bond counsel for the district.

"We're just keeping an eye on our bonding capacity and we always try to be looking toward the future," Massey said. "And where we're at with bonding capacity and the big thing is, as we've ran these bond issues, we've put a call feature that gives us an option of renewing bonds more often if there are more favorable interest rates. It saves significant interest."

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