Mt. Lebanon is putting historically low interest rates for borrowers to good use.
On Dec. 8, the municipality plans to sell bonds in order to refinance existing debt, with the savings expected to top $500,000.
“This will be in line with our current debt service program,” finance director Andrew McCreery said during the Nov. 10 Mt. Lebanon Commission meeting. “Our debt service payments will not fluctuate over time.”
The cash influx from the refinancing, which is expected to be available to the municipality Dec. 22, is earmarked for capital projects.
An ordinance authorizing the issuance of two series of general obligation bonds, in a principal amount not to exceed $18.615 million, gained unanimous approval by the commission. The proceeds will pay off bonds that the municipality issued each year between 2013 and 2017, plus the cost of expenses associated with this year’s issue.
Nick Falgione, managing director of bond underwriter PNC Capital Markets, provided further details at the commission’s discussion session, which preceded the Nov. 10 regular meeting.
“It’s amazing. Every time we come before you to show you refinancing opportunities, the phrase ‘rates have never been lower’ is often uttered,” he told commissioners. “The average refunded bond rate that we’re looking at is about 2.41%.”
Based on that rate, the municipality looked to realize present-value savings of $575,274, representing 3.6% of the refunded bonds after costs.
“That 3.6% is an important metric, because we look at 3% as being kind of a widely used GFOA guideline for if it makes sense to refinance debt or not,” Falgione said, referencing the Government Finance Officers Association, which provides information on best practices and other resources to governmental entities in the United States and Canada. “So we’re in excess of that currently and look to remain so as we move forward.”
Mt. Lebanon’s 2020 issue is split between nontaxable and federally taxable bonds in two separate series. The latter is necessary because of a 2018 federal tax law disallowing advance refunding of all tax-exempt bonds.
As the law applies to Mt. Lebanon, its bond issues of 2016 and 2017 have call dates in 2022, and paying them off in advance can be accomplished only by going the taxable route.
That can have some advantages, according to Ronald Brown of bond counsel Dickie, McCamey & Chilcote, P.C., the law firm that prepared the 2020 bond ordinance.
“There is flexibility, because then if interest rates drop even more dramatically, you could refund those without any tax code implications,” he told commissioners.
Information presented Nov. 10 shows Mt. Lebanon has debt service $26.665 million in principal in through 2032. Payments are scheduled at about $3.4 million annually through 2024 and then slightly under $3 million through 2028, with the amounts continuing to drop during the final four years.
This year’s bond sale prompted Falgione to express optimism about the proceeds, despite heavy activity earlier in the year among other governmental entities looking to take advantage of low interest rates.
“The demand’s still pretty solid. The supply seems like it’s waffling a bit,” he said. “I think the big rush is passing us right now, based upon what I’ve observed.”