Poway City Hall bonds to be refinanced
By Emily Sorensen
The Poway City Council on Tuesday night agreed to proceed with the refinancing of the city’s 2003 Certificates of Participation (COPs), which financed the building of City Hall and the City Council building.
The COPs, which unlike the Capital Appreciation Bonds (CABs) that have been in the news recently, are “serialized coupon bonds,” meaning the city makes interest payments on a regular and rhythmic basis, rather than waiting for an extended period of time for interest to accrue and then paying it off over 20 – 40 years. COPs, according to Tim Schaefer of Magis Advisors, who spoke at the meeting last night, generally trade at lower interest rates than CABs.
In 2003, the City of Poway borrowed $17,655,000 for the City Office Building Project, with a term of 30 years to be paid in full in 2033. Thanks to a call feature, the COPs are eligible for refinancing every 10 years, with the first time being January 2013.
Refinancing will end up saving the city roughly $4 million over the next 20 years, or nearly $200,000 per year, according to a staff report. The city’s repayment would be about $1.8 million a year. The maturity date of the bonds will not change from the original 2033 ending date.
The remaining amount owed on the COPs is $14.5 million, and with current interest rates on tax exempt financing much lower than the city’s current 2003 rate, it was proposed that the city approve the refinancing of the COPs. While the 2003 COPs were issued at interest rates ranging from 3 to 5 percent, with refinancing it is believed that the city could get a rate of 3 percent interest. The 2012 COPs will be structured in such a way as to allow them to be refinanced again in 10 years, if needed.
According to Schaefer, the 2003 COPs were designed with intention to use the call feature to refinance in 2013, so the cost for the call feature is buried in the interest rate. “You always want to have an escape hatch,” said Schaefer.
The city’s refinancing efforts are being bolstered immensely by Standard & Poor’s rating these bonds as AA+, the highest rating this type of financing can receive. This stellar credit rating means that the city will not need to budget extra money for bond insurance, as its AA+ rating is equal to the only remaining bond insurance company in the country and would essentially add nothing extra.
Notifications of the sale of the COPs will be posted Friday, Sept. 21, and final pricing numbers will be available Wednesday, Oct. 3. According to Schaefer, the amount authorized for the preparation, sale and delivery of the 2012 COPs cannot exceed $15 million, and the interest rate cannot be over 3.25 percent, or the sale will not be made and the city will retry again when the market settles. If sold, the city’s savings would begin Jan. 1, 2013.
The cost of issuing the 2012 COPs is estimated to be $207,750, and will be paid entirely from the refunding. These costs will only be paid if the 2012 COPs are successfully sold.
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