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School refinancing to save $232,000
by Gregory R. Norfleet · News · December 01, 2016
West Branch Community Schools will save nearly $232,000 after a school board vote Monday to refinance a loan worth more than $2.4 million.
The school district borrowed about $3.26 million in 2011 to build a new gymnasium and weight room with a geothermal heating and air conditioning system at West Branch High School.
Today, about $2.46 million remains on the loan, Superintendent Kevin Hatfield said, but, by refinancing, the principal will drop to just over $2.4 million.
The loan, made by selling general obligation bonds, will finalize on Dec. 8.
The new loan includes an interest rate of 2.04 percent. The current loan had a rising interest rate that currently stands at 3.25 percent and reaches 4.4 percent by 2029, the final year of repayment. Assuming the school district makes payments on time, the refinanced loan will end in 2027.
The full board held a special meeting by telephone conference at noon Monday for about 15 minutes. Board member Keith Schultes was the only one physically present in Hatfield’s office. Also on the phone was Piper Jaffray Senior Vice President Matthew R. Gillaspie, who explained each of the remaining steps to approving the refinanced bonds.
Bids went out to dozens of banks, including both West Branch banks, and four returned bids. All four bidders came from outside Iowa.
The winning bid went to Branch Banking & Trust Co’s BB&T Governmental Finance of Charlotte, N.C. BB&T’s 2.04 percent was the lowest interest rate, and the three others ranged upward from there to 2.55 percent.
The total interest on the $2.4 million loan is set at just under $309,000.
BB&T’s bid was good for 30 to 40 days, Hatfield said, and it came in right before the Nov. 14 regular monthly school board meeting.
Gillaspie said the school district “by luck or whatever, got in at the last minute” because interest rates rose to 2.5 percent within the last couple of weeks.
“That’s a pretty dramatic swing upwards,” he said, noting that four or five other school districts locked in the lower rate. “Congratulations on that.”
Schultes agreed.
“We got lucky” approving the refinancing at the lower rate, he said.
Hatfield said lowering the overall cost will mean lowering annual payments, which will free up between $20,000 to $30,000 per year.
In an e-mail to the school on Nov. 8, Gillaspie noted that the school district was considering refinancing for about two years before interest rates made it feasible.
He also wrote in that memo that refinancing with a private bank would “avoid the hassle and expense” of preparing an official statement on the bond reissue, stating strengths and weaknesses; the work involved in preparing the official statement; the potential liability of a public sale of the bonds; and setting up a debt service fund.
The school district did not refinance bonds sold to install geoHVAC at Hoover Elementary and other related projects as that loan is due to be paid off in 2018, Hatfield said.
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