Bond refinance deal to save $1 million

By Erika Pedroza | Published Wednesday, October 3, 2012

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At a special meeting Thursday, the Bridgeport City Council approved the issuance of $2.67 million in new bonds to pay for upgrades in the city’s infrastructure and $2.95 million to refinance outstanding debt.

The refinancing would save residents $1 million over the next 20 years, Emmons said.

The city began looking at refinancing the old bonds, which were for water plant and street work dating from 1999, 2001 and 2006, at the end of last year, but first they had to address the line of credit for North Texas Community Hospital, formerly Doctors Hospital.

In February, the council voted to sue the hospital for the debt, which city officials said was the best way to protect the rights of both parties.

“Once we were able to resolve these issues and present a solid financial case to the rating agencies, we placed ourselves in a position to really benefit from the refinancing,” City Administrator Brandon Emmons said. “We received a two-position upgrade from Moody’s Investor Services, and we received a BBB+ rating from Standard & Poor’s. With the higher ratings, we were able to effectively market the bonds at a lower interest rate.”

With these rates, the city will save $281,538 on the bonds for the old debt. According to Emmons, the city had a long-term note at a higher interest rate they wished to restructure at a lower rate.

“With regards to refinancing, it is easiest to compare it to refinancing a house,” he said. “We had outstanding debt from three previous bond issues totaling $3.54 million at an average interest rate of 4.3737 percent.”

Officials sold $2.955 million in new bonds to cover the balance, at an interest rate of 1.5056 percent, and paid off the old bonds early.

“The new debt will have a total principal and interest payoff of $3.26 million,” Emmons continued. “Therefore, we will save $281,538. This is a true savings from what we would have had to pay, thus saving the residents an average of $28,000 each year over the next 10 years.”

The council also approved a bond issue for debt associated with the energy savings and infrastructure project as outlined through the performance contracting with Siemens Industrial Inc. over the last 18 months.

“As required by law, the project must be budget-neutral, and all the costs associated with it have to be paid out of savings generated by the improvements,” Emmons said. “We are issuing $2.67 million to pay for the improvements identified in the detailed energy audit that was completed earlier this year. The payout for these improvements will be amortized over a 20-year period.”

Before addressing the hospital line of credit and upgrading the city’s financial conditions, officials were looking at a 4.2 percent interest rate.

“We are now receiving a 2.6 percent rate, which means that we will start seeing a net positive effect from this project earlier,” Emmons said. “Over the 20 years of the life of these bonds, we will see a net positive savings in operations of approximately $700,000.

“With both of these bond issues, we will be saving the residents approximately $1 million over the next 20 years,” Emmons said.

At the meeting, council members also extended a contract with Southwest Securities for financial advisory services five years.

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