School saves half million dollars in refinancing
The Somerset School District couldn't have picked a better time to refinance.
The school district refinanced the final 10 years on the bonds remaining from the selling of the bonds for the Somerset High School building in 1994. By getting a 2.59 percent interest rate, instead of a 5.0 interest rate, the school district is going to be saving more than $500,000 over the final 10 years of those school bonds.
The total the school will save through the entire refinancing process is $523,829 in net present value.
As the process was started, Moody's, the company that sets bond ratings, reviewed the school district's situation. Because of the stability of the district and board of education, the school district's bond rating was raised from BAA to A3. This move saved the district $35,420 at the start of the process.
Subsequent to the bid opening, the bond issue size was reduced from $5,280,000 to $5,220,000, a savings of $60,000. This was due to the bid rates coming in lower and the reinvestment rates coming in higher. That meant the district did not need to borrow as much money to meet their needs.
Then came the bid opening. Eight companies made bids, with interest rates offered from 2.59 percent to 2.68 percent. The school board moved to award the bid to Griffin, Kubik, Stephens and Thompson Inc. at 2.59 percent. With the other savings, this will result in the total savings of $523,829.
The current high school bonds had been sold at 5.35 percent interest.
The call date on the high school bonds is in October, 2004, meaning the new rates will take effect then. But by acting now, the school district was able to lock in the bonds at the low rates.
The restructing of the bonds also allowed the school district to level out the payment schedule of the bonds. The original plan had several spikes in the payment schedule that likely would have resulted in increased tax levies.
District business manager Jan Carlson said that it is too early to consider reselling the bonds on the elementary school loan. The call date on the elementary loan is in 2010.