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North County discusses bond refinancing

The North County Board of Education met in regular session and discussed the municipal bond underwriting agreement and resolution authorizing the issuance and sale of $7 million of general obligation bonds.

L.J. Hart & Company Vice President Brad Wegman said they have great news to report about the municipal bond market and interest rates.

“There has been a lot of chaos in the world. With Great Britain leaving the European Union there is a lot of turmoil internationally,” said Wegman, “which has caused a huge influx of money all across the world into American bonds and treasury. America is the greatest country and the safest investment, so even though rates are so low, internationally money keeps flowing into American securities for a safety net.”

Wegman added some other countries have a negative interest rate, so that keeps pushing American rates low as a safe, good investment.

“We are able to monitor that situation and take advantage of it by refinancing your 2014 new money bonds,” said Wegman. “It’s a $7 million financing and we sold some of those bonds at a premium to generate extra proceeds for your project. At that time when we first underwrote that financing in 2014 we were anticipating that with the five-year call feature, we could potentially refinance and save about $670,000 in interest expense.”

Wegman added with the drop in interest rates they were able to lock out a final savings of $1,448,000, so almost $1.5 million in interest savings. He said it is almost double what they ever anticipated to achieve in the first issue of financing.

“We were within $2,891 of our original projection,” said Wegman. “We anticipated we would be right in the $1,450,000 region, so we were shy of what we anticipated we would achieve. Overall more than double what we first anticipated.”

Wegman said the district is in a great position for future projects.

“The thing that is interesting is we were able to refinance 2014 bonds from an average interest rate at 4.2 percent down to 2.05 percent,” said Wegman. “With this refinancing savings of $1,448,000, that brings the average interest rate on all the districts outstanding debt down to that same 2.05 percent. It’s kind of interesting that the average interest rate on this new refunding is exactly the same as the interest rate on average for all the debts — 2.05 percent on everything is a great interest rate.”

Wegman said the district is in a great position for a future no tax increase within four years and they have calculated the district could easily borrow $12 million for a bond issue at that time.

“We are using a growth rate in your assessed evaluation that is below the 1.6 percent and we are also assuming about 2 percent points higher on the new financing than were we are right now, which will allow some flexibility for interest rates,” explained Wegman. “Overall you are in a great position for the future.”

Another key factor Wegman mentioned was on the refinancing, they were able to shorten the repayment by two full years and pay off the bonds early with the huge amount of interest savings. He said the final maturity on the bonds is 2032.

“So two years shorter than it originally was,” said Wegman. “A 20-year financing to be paid off with the last payment in 2034 shortened by two full years just helps you on the back-end. It gives you money for new projects and be in a great position going forward.”

North County Superintendent Dr. Yancy Poorman said the total savings to the district is approaching $9 million in refunding since he started this program seven or eight years ago.

“The board has been very gracious. They understand now to allow me to do that and on our current savings since 2013 when we regained the bond issue the district has a principal savings of $4.6 million,” said Poorman. “We are in a good position moving forward and we are also in a position. I say it jokingly, but it is the truth, since the market is not good, being in debt is a good thing because we refinanced at lower rates and that is where the savings come from.”

Poorman said should the market recover, it will not harm them, they are locking their rates in for the periods of the refinance.

“Long-term projection of North County debt service-wise, we will be in a very strong position.”

Poorman also added they had a public hearing to set the tax rate for 2016. He said they told the taxpayers when they ran the bond issue in 2014 that it was a no-tax increase bond issue and they would retain that rate as long they could possibly could.

“We are in year 5 of not having to adjust the taxes in the North County School District and the board is going to continue to approve the same tax rate,” said Poorman. “We have not changed it, we have restructured it. We had to move some pennies to debt service to make sure we are paying our bills and for a refunding program we are on now for seven or eight years. But we did not increase taxes, everything will be the same.”

Poorman said their assessed valuation has slowed down the past few years.

L.J. Hart Vice President Brad Wegman, right, and Finance Analyst Katie Kaufmann discuss the new interest rate they were able to get for the North County School District's bonds.

L.J. Hart Vice President Brad Wegman, right, and Finance Analyst Katie Kaufmann discuss the new interest rate they were able to get for the North County School District’s bonds.

Renee Bronaugh is a reporter for the Daily Journal and can be reached at 573-518-3617 or

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