The Union Recorder

June 20, 2013

County refinancing water debt

Raymond James selected as underwriter

Kyle Collins
The Union-Recorder

MILLEDGEVILLE — After reviewing proposals to refinance the current Baldwin County water fund debt Tuesday, the county commissioners chose Raymond James (RJ) as the underwriter.

The board voted 3-2 to accept the firm with Tommy French, District 2, and Emily Davis, District 1, against the motion.

Milledgeville native and RJ First Vice President Tom Owens made a better presentation, according to District 4 Commissioner Henry Craig.

“They have been around longer, have more facilities and they are a larger organization that would be able to give us more flexibility as we move forward,” Craig said.

Considering Raymond James and Merchant Capital provided similar proposals, Commissioner Sammy Hall, District 3, said it came down to who which company county officials felt most comfortable with.

“It’s not a nickels worth of difference between the two,” Hall said Tuesday. “We are going to decide how we structure it in the best interest of Baldwin County.” 

The county wants to refinance the current water debt to receive a savings.

Owens presented three options with these directives in mind:

• Refinance all outstanding water-related debt;

• Produce the greatest amount of savings;

• Pledge only water revenues to the refunding bonds;

• Shortening the debt is allowed to achieve these goals;

The county can choose the private placement offering or the rated public sale route.

• 15-year, Non-rated, Private Placement

RJ sees this option providing the max savings.

All five series of existing debt would be refinanced with a single refunding issue. By shortening the term of existing USDA bonds, the county would save interest costs since the private placement eliminates the last 10 years of debt service.

Annual payments would be less than the current highest payment on all existing debt. Bonds would be sold to one or a collection of banks through non-rated transactions. 

Though a projected 2.90 percent interest rate isn’t quite as good as a public offering, the private placement structure could front load the gross savings or spread out the principal.

“The first option is what I feel matches the request as close as possible,” Owens said.

• Public Offering, Lower Yearly Payments

This finance would maintain the existing debt structure, while lowering the payment in every year. The second option balances maximum savings with decreased payments.

RJ would evaluate having the refunding bonds insured through a municipal bond insurance company. This could enhance the county’s credit.

Owens said the county already has information required for public disclosure throughout the life of the bonds such as the 10 largest sewer and water customers.

• Public Offering, Take maximum advantage of low rates

The county’s current $5.2 million loan from the Georgia Environmental Finance Authority (GEFA) Drinking Water State Revolving Fund for multiple water infrastructure improvement projects is considered subordinate debt for public offering.

This final maximum cash scenario stretches the debt term to 30 years.

“We can take that debt and wrap it around the GEFA loan to create the absolute lowest payment each year. This should create somewhere on the order of $300,000 per year of free cash flow,” Owens said.

According to the proposal, this option offers the highest overall debt service coverage.

The extra cash might prepay the GEFA loan or go to other areas. Yearly savings could boost the general fund or accumulate into a renewal and extension fund for future water system improvements or repairs.

• Refinancing decision

Owens said the proposals interest rates should remain steady, but Finance Director Dawn Hudson said these numbers are never certain.

“The rates aren’t guaranteed,” she said. “We will work with (Raymond James) to present more financial information that may change the rates proposed to the good or bad side.”

More service fees are built into the public offering because agents must push the bonds to investors. Private placement gets in the market faster.

Owens reminded the commissioners that principal payments could be pushed backward or forward for the life of the debt depending on county preference.

“There’s a lot of flexibility in terms of the final look of the thing,” Owens said.

Restricting water fund debt service looks like a meaningful step creating stronger fund reserves for future county operations.

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