Cassville schools save $1 million in bond expenditures due to global market

Wednesday, November 16, 2016

District receives drop in interest rates

Credited to recent shake-ups in the global economy, the Cassville school district was able to capitalize on a series of events overseas to save a large sum of money relating to its bond repayments.

When the United Kingdom withdrew from the European Union, interest rates dropped state-side, and the district and its board of education moved quickly to secure lower interest rates for its bonds, resulting in $1,000,892 in savings to the district and local taxpayers.

"When they [United Kingdom] voted to exit the system, it's no different than when the federal government raises or lowers interest rates," said Richard Asbill, Cassville superintendent. "There are all sorts of impacts to the global and American markets, and in this case, the interest rates that exist for municipal bond markets. So, when those rates react to the Brexit [the term for the U.K. leaving the European Union], they went down."

Asbill compared the process to refinancing a home.

"We were able to secure an interest rate significantly lower than what we have," he said. "In this case, it shortened our bond debt payment by two years, but also saves money each year in our payments."

The new interest rates were locked in on Oct. 25, refinancing the district's 2014 bonds. The $4,000,000 general obligation refunding bonds achieved an average interest rate of approximately 2.47 percent, compared to the 2014 bonds, which carried an average rate of about 4.33 percent.

The district's decision not only significantly reduced future interest expense, but also shortened the final repayment period by two years from the original Series 2014 bonds.

The savings also provides a unique opportunity for the district to meet future fiscal needs freeing up capacity for a possible no-tax increase proposal for building or renovation projects when needed, Asbill said.

School district board President John Sullivan said the potential for even more savings is possible as well, due to the Series 2016 refunding bonds having a call feature in March 1, 2021, at no penalty.

"If interest rates are lower in 2021 or later, we can take advantage of that," he said. "Meanwhile, we are locking in these levels that are [1.86 percent] lower than they were in 2014."

L.J. Hart & Company of St. Louis, which underwrote the Series 2016 Bonds and prepared the refunding proposal, and Brad M. Wegman, vice president of the firm, said three main factors made the Series 2016 refunding possible: Lower interest rates than in 2104; the entire $4,000,000 of the Series 2014 Bonds being subject to prepayment on March 1, 2019, at no penalty; and the district's ability to participate in Missouri's Direct Deposit program, which makes it possible for the district to have an AA+ rating from Standard & Poor's corporation on the refunding bonds.

Wegman praised Asbill for his "prompt and thorough" preparations to provide the data needed for the rating application and official statement, and the board of education for their foresight in making the Series 2014 callable in five years.

The proceeds from the 2016 Refunding Bonds will be held in an escrow account with UMB Bank, N.A., and reinvested in U.S. Treasury Securities. The earnings from the account will meet the interest payments on the Series 2016 Refunding Bonds through March 1, 2019, and prepay the callable Series 2014 Bonds.

Locally, Security Bank of Southwest Missouri acquired $360,000 of the bonds, First State Bank of Purdy purchased $1,380,000, and UMB Bank, N.A., bought $445,000 to support the district, according to L.J. Hart & Company.

"The refunding bonds are put on the market for individuals or banks to buy as an investment piece, and we were very fortunate that two of our local banks, and UMB Bank out of Monett, also participate in the process," Asbill said. "And, that's good for us as well because when you put these refunded bonds on the market, we're able to market them quicker and that's why we were able to save slightly over $1 million."

Asbill added that L.J. Hart has saved the district $2 million in taxpayer dollars since 1993, and almost $1 million since 2013.

The closing for the Series 2016 Bonds will occur on Nov. 30.

Respond to this story

Posting a comment requires free registration: