Rising interest rate brings quick stop to county bond refunding

Anoka County’s plans to go into the bond market to refund existing bonds at a lower interest rate to save money came to an abrupt halt Dec. 19.

That’s because bond market interest rates had increased to the point where the savings did not meet the parameters set by the Anoka County Board at its meeting the day before, Dec. 18.

The board had given preliminary approval Dec. 7 for the issuance of refunding bonds for four current bond issues and Dec. 18 it gave final approval contingent on the county’s pricing committee being able to sell the bonds at an interest rate that met the county’s debt service savings goal.

The board was hoping to refinance $10.785 million in 2005 Anoka County Airport general obligation improvement bonds, $3.83 million in 2006 general obligation capital improvement bonds, $4.28 million in 2007 general obligation capital improvement bonds and $1.75 million in 2007 library improvement bonds.

At the Nov. 8 meeting, it had been anticipated that refunding the four bonds would save the county $2.3 million overall with an interest rate under 2 percent, according to Cevin Petersen, county division manager for finance and central services.

But by the Dec. 18 meeting, bond market interest rates had increased to an anticipated 2 percent with savings at $2 million or a bit less, Petersen told the board.

On Petersen’s recommendation, the county board set parameters of a minimum savings of $1.7 million.

But when the county’s pricing committee attempted to sell the bonds the morning of Dec. 19, the bond market interest rate had jumped to 3.5 percent and the savings would have been only $1 million, Petersen said.

To refinance bonds, savings of at least 3 percent must be realized and while that mandated threshold would still have been met, the savings fell short of the board’s parameters, he said.

As a result, the pricing committee, which included the county’s financial consultant Springsted Inc. and bond underwriter Oppenheimer & Co., decided not to sell the bonds, postponing the refunding project.

According to Petersen, the bond market will be monitored on a daily basis, but it is unlikely any further action will be considered until after the holiday period because investors are not generally active during that time.

What triggered the big jump in interest rates over one day is believed to be a sudden move by investors from the bond market to the stock market, Petersen said.

Besides saving the debt service money, the county had hoped to be able to pay off the airport bonds three years earlier than planned under the original bond issue and have a lower debt payment in the final year of other three bonds, he said.

In other bonding action Dec. 18, the county board ratified action taken by the Anoka County Housing and Redevelopment Authority (HRA) Nov. 8 to approved the refinancing of the bonds that had been sold by the county on behalf of the Minnesota Amateur Sports Commission (MASC) and National Sports Center (NSC), one to construct the Schwan’s Super Rink with its initial four ice sheets and the second to finance the expansion of the Super Rink with an additional four sheets of ice.

Those refunding general obligation bonds have been sold with an interest rate of just under 2 percent and a savings of $1 million over the life of the bonds or some $75,000 a year, according to Petersen.

The county board was required to take action because the bonds involved the general obligation of the county, even though revenues generated by the Super Rink pay off the debt service on those bonds, Petersen said.

“The ice arena has been very successful,” he said.

“It is self-supporting, all bond payments have been met and it is making a profit.”

Peter Bodley is at peter.bodley@ecm-inc.com

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