The Pike County Fiscal Court has passed a resolution authorizing a lease agreement that would help the county refinance its bond debt for the Pike County Judicial Center.
During Tuesday’s regular meeting, the court authorized entering into a lease agreement with Compass Municipal Advisors, who Pike County Judge-Executive Ray Jones said would be working with the fiscal court regarding its bonding for the Judicial Center.
“We appreciate the opportunity to be here this morning to assist in the passing of two resolutions that are required for refunding the AOC (Administrative Office of the Courts) debt on the Judicial Center,” said Senior Vice President for Compass Municipal Advisors R.J. Palmer.
Palmer handed each member of the court a one-page savings summary, which he said compares the existing debt tiothe estimated new debt service and net savings.
“The way this process works, you enter into a lease with AOC,” Palmer said. “They pay the debt service for you through a lease agreement.”
According to Palmer, when the company identifies bond issues where there are savings available, and since the county is the issuer of the debt, AOC shares in those savings as well. The county receives 10 percent of any savings that are realized. He added that there would be no change in the maturities or the structure of the bonds.
“This is simply a reduction in interest rate,” he said. “The remaining term of this debt has an interest rate of 3.96. Based upon where rates are today, we think we can issue the debt and lock the rate at 2.5 percent.”
That 2.5 percent is what Palmer called a “forward lock,” which means those bonds are not “callable” until Aug. 2021. And he estimates savings to be “approximately $799,000.” Ten percent of those savings, which would be more than $79,000, would then be returned to Pike County.
By entering into the lease agreement, Palmer and his company can begin the process of determining when the most “opportune” time to set the rate.
“It may not be today,” Palmer said. “Because it so far out, there’s a limited number of underwriters who will lock a rate that far in advance. So in essence, they’re locking their rate today but they won’t use those funds until 90 days prior until that Aug. 2021 call date.”
Palmer said that, if the county can get within one calendar year, instead of two as it currently stands, there is a likelihood that the “pool of bidders” would expand. If more competition is created, then Pike County may receive a lower interest rate than Palmer and his company originally estimated.
He doesn’t know what the interest rates will be 2021, but Palmer said but if the court elects to lock in that 2.5 (percent) rate, it will guarantee those estimated savings. He added that the court could wait and see if rates “don’t move.”
“Essentially this is the same as somebody out there paying a mortgage and being able to refinance it to cut their payments and save money over time,” Jones said. “So we’re cutting the rate from 3.9 (percent) to a high of 2.5 percent.”
Jones said he doesn’t see interest rates going below 2.5 percent on the municipal bond market. Palmer said bond market is near historic lows, but that there are so many outside elements that do impact it.
“For instance, the bond market is very quick to react to global news,” Palmer said. “The perception that there’s some movement on trade talks with China on Friday actually increased rates by 8 basis points. So we never know what may happen that’s completely outside of Pike County or Kentucky that may impact this transaction.”
According to Palmer, what they do know, is the closer it gets to the call date, the more underwriters that would be interested in providing more competition.
“That being said, this is pretty significant savings for the taxpayers of the commonwealth, that would return nearly $80,000 to Pike County,” Palmer said.
Palmer suggested waiting until the first of the year to do the refinancing. That would get within one calendar year of the call date.
The court unanimously passed the resolution and entered into the agreement.