Refinancing bonds could save city $400k
McCOOK, Neb. -- The McCook City Council advanced the pursuit of debt consolidation bonds Monday evening estimated to save the city some $400,000 over a 20 year period. The approved ordinance authorized city staff to negotiate parameters of up to $10,000,000 in bonds intended to take advantage of what was described as a historic interest rate environment that could be coming to an end.
The Combined Utilities Revenue Refunding Bonds would be used to refinance two outstanding sewer department loans and one water department loan. The sewer loans represent approximately $2.27 million in combined debt and the water loan totals approximately $6.7 million, according to City Manager Nate Schneider.
Schneider requested City Council suspend the three-reading rule for the item so city staff could begin working with financial advisor Brad Slaughter of Ameritas and take advantage of favorable rates and fluctuations in the market. Authorizing city staff to move quickly on the item could result in a savings of greater than the $400,000 minimum goal.
"Our goal is to have interest rates under three-percent and also save a minimum of 4-percent of the present value of the three loans," said Schneider. He said approval would allow them to begin the rating process which evaluates the city's creditworthiness and ability to pay back the loan, a major factor in determining the available interest rate.
The approved bond amount was capped at $10 million and financed over a maximum of 20 years.
"The minimum savings has to come in around $400,000. If we can move relatively quickly the savings we can generate will be greater than that," said Slaughter. He indicated the city was in a favorable position, credit rating wise, pointing out the city didn't have a lot of debt outstanding and wasn't a name municipal lending institutions were familiar with or had seen loan requests from on a regular basis.
Slaughter said there wasn't any downside to the refinancing effort other than attempting to save money and capitalize on a historic rate environment.
The approved ordinance empowered city staff to see the refinancing effort through and Schneider indicated it would only be brought back if there were needed changes. The rating process is estimated to take 10 to 14 days to complete and Mayor Mike Gonzales asked city staff to report back to council as the effort progressed.
Utilities Director Jesse Dutcher highlighted the issued bond would be a revenue bond, stemming strictly from refinancing of existing utility debt, as opposed to a general obligation bond. Revenue bonds are paid entirely by revenue from the sale of city water and sewer service and don't involve tax dollars, he said.