Council this evening approved the resolution which seeks to strip away what has been a confusing swap payment on the original bond issue and seeks a fixed interest rate rather than the current variable rate. The document also sets up a team to navigate through the negotiations which could lead to the ultimate restructuring of the debt.
Councilman Wayne Smith made the motion to approve the resolution and Suetta Scarbrough made the second.
“This is the first step in the process for terminating the bonds for the theater,” City Manager Joseph Scherer told council. “The new financing should improve our cash flow situation and our variable risk.”
Scherer explained later the restructured debt will eliminate the risk of the city’s variable bond payment.
An interest rate on the debt will not be locked until two business days before the closing of the transaction, City Attorney Gilbert Chichester said following the meeting.
Chichester expects at council’s next meeting to have all the figures on the proposal, including those showing how much the city will save on refinancing the debt. Representatives from Davenport & Company, the city’s municipal bond advisor, and the city’s bond counsel of Womble Carlyle Sandridge & Rice are expected to be at that meeting to explain the process.
According to the action request form contained in the agenda package, the city is requesting the LGC to sell the bonds at a private sale, approve a proposal to purchase the bonds and approve the financing team for the proposal.
According to the document, the city currently has $15,570,000 outstanding on the payments for the 2007 bonds issued to build the theater. The initial bond issue, which also financed operations and operating capital for the venue, was for $21,500,000.
“In connection with the issuance of the Series 2007 Bonds, the city entered into an interest rate swap agreement with Bank of America to hedge the variable rate interest on a portion of the Series 2007 Bonds,” the resolution says.
But, the city says in the document, it “has determined that it is in its best interest to refund all of the outstanding Series 2007 Bonds and to terminate the swap agreement in order to restructure the city’s annual debt service obligations so that it can continue to provide the same level of municipal services to its citizens and eliminate certain risks to the city associated with the hedged variable rate structure now in place for the Series 2007 Bonds.”
Bank of America, the resolution says, has made a financing proposal to the city to refinance the 2007 bonds under an arrangement where the bank would purchase the city’s proposed 2017A bonds, which are tax-exempt, and the proposed 2017B bonds which will have taxable interest.
This would refund the 2007 bonds, pay the cost of terminating the swap agreement and pay other costs and expenses incurred with the sale of the bonds.
The resolution notes the annual audits of the city show it to be in strict compliance with debt management policies and the city’s fiscal management policies are in compliance with the law. “The proposed bonds will be marketed at a reasonable interest cost to the city,” the document says.
Scherer said he is hopeful closing on the proposal will be by the middle of May.