City commissioners read an ordinance Tuesday regarding the City’s intent to refinance, or refund, five previous bonds through the issuance of a new series of the bonds. Each series of bonds will be sold and awarded to the successful bidder, helping the City and its taxpayers to save money.
The five prior bonds total $65,585,000 in debt service to the City and were issued between the years 2011-2019. These bonds were issued to cover the construction of the downtown parking garage, Smothers Park development and multiple phases of the downtown revitalization project.
City commissioners say they’ve determined that, due to the current conditions of the municipal market, refunding these prior bonds would be “advantageous and in the best interests of the City to proceed expeditiously with the refunding of all, or a portion of, each series of the prior obligations in advance of their final maturity, thereby enabling the City to realize substantial debt service savings.”
The City said they will continue to monitor interest rates to ensure that each refunding will be beneficial with changing economic conditions.
City Manager Nate Pagan said it was important to point out that following through on this ordinance would not create new debt to the City in any way, but will relieve some of the debt the City currently faces under the previous bonds.
“All of these actions involve existing debt, so this does not authorize any new debt,” Pagan said.
Senior Vice President of First Kentucky Securities Stan Kramer explained that falling interest rates presented an opportunity for Owensboro to refinance and bid out previous bonds.
“We’ve been presented with an opportunity here because the markets are unsettled, and there’s a flight quality going on, which is [creating] down bond yields, so we’re actually going to a taxable structure to refund tax exempt debt,” Kramer said. “It’ll make the savings and create these kind of opportunities.”
Kramer said everyone who works in the bonds industry will soon be moving toward this kind of process in the near future.
The E Bond is the largest of Owensboro’s bonds at $36,690,000, the proceeds of which were used to finance and refinance costs of the acquisition, construction, installation and equipping of an economic development program within City limits. Kramer said that bond is not yet ready to sell, though it’s close.
“It’s doable, but we’re not enacting a sale yet,” he said. “In doing all of these ordinances, we thought it’d be best to put them all together because [the E Bond] is close. We’re looking to save at least $100,000 a year on that bond issued alone.”
Kramer predicts that the total savings from the refunding of these previous bonds issued would total $5.5 million.