Thursday, March 13, 2008

Board Votes To Refinance City Debt

   Lawrenceburg leaders have agreed to refinance a portion of the city’s debt structure in order to move away from a currently costly variable interest rate.

   The resolution allowing the “refunding of bonds” was approved unanimously during a meeting of the Lawrenceburg Board of Mayor and Commissioners Thursday morning.

   C.L. Overman, a representative of Morgan Keegan & Company, Inc., addressed the board regarding the issue. He advised board members to approve the resolution, calling for “The issuance of General Obligation Refunding Bonds in the approximate aggregate principal amount of $6,050,000…”

   Overman indicated that the bonds in question are slated to run through the year 2030. Of the $6 million-plus issuance, $1,750,000 was earmarked for “General Obligation Projects,” while the remaining $4,100,000 was used for water and sewer system projects. While the variable rate has allowed the city to pay low interest rates of around 3%, Overman said that this is no longer the case.

   Explaining that “the fallout associated with sub-prime mortgages is now affecting the municipal bond market,” Overman stated that the three rating companies have begun to “downgrade rates.” The City of Lawrenceburg is no longer classified as having a 3A rating. While nothing has changed as far as the city’s credit-worthiness, Overman said, “There has been a change in perception.”

   This change has resulted in the city’s interest rate increasing from the former 3% to around 5 ½ %. Overman pointed out, “There is volatility in variable rate bonds and its time to get out.”

   Overman expressed his belief that his company will be able to lock in a fixed rate for the city of around 4 ½ %. The entire process, he stated, will take around thirty days to complete.

   Mayor Keith Durham inquired about the possibility of mitigating costs that have been passed along to the city’s water and sewer customers in past years. Overman indicated that they can conduct a Sensitivity Analysis to determine whether this might be possible. However he did explain, “We would probably recommend leaving (the rate structure) the way it is so that you will have bond issuance power in the future.”

.

.