Structuring Financing
Published 4:30 pm Tuesday, October 19, 2010
BUCKINGHAM – Acting on several financial-related matters during their October 12 meeting, supervisors gave the green light for work to begin on the renovation project for the two schools on Route 20. Additionally, they approved a resolution authorizing refinancing the courthouse bonds with a plan that includes financing for the county administration complex.
Prior to the action, Lisa Williams, bond counsel for the county, presented the board with a proposed resolution for the financing of certain capital improvements with respect to the upper and lower elementary schools.
She explained the first resolution dealt with the short-term or interim financing of the project, which she said would be handled through the county's industrial development authority.
According to Williams, who is with McQuire Woods LLP, the interim financing would mature no later than December 31, 2011. “The intent is to interim finance until a long-term take-out plan can be put in place,” she offered.
Williams said the resolution calls for the approval of up to $25.1 million. “It doesn't have to be that number but it can be anywhere up to that amount,” she added.
Financial advisor Ted Cole, with Davenport & Company, explained, “The resolution allows you to put funding in place that will enable you and the schools to enter into a construction contract to begin work on the project.”
Noting they did a competitive solicitation with banks, Cole said they received two very competitive proposals in terms of interest rates and flexibility in prepayment and fees.
“Ultimately, you all will have a couple of different options on how to finance these school projects over the long-term,” added Cole. “We are waiting in particular for one attractive long-term funding option called Qualified School Construction Bonds. That's a stimulus-related financing tool. The state controls those bonds and who gets that allocation.”
He continued, “We expect an announcement any day on what local governments or school divisions get funding or can apply for funding.” Cole added, “It is a very attractive program.”
The financial advisor explained that the interim financing would allow the county to move forward with the project while getting the long-term financing in place.
Cole said the county would have the ability to collapse the interim loan when the long-term financing is in place.
According to Cole, once supervisors approve the resolution, it would go to the IDA for its approval, with a meeting slated for October 21.
He added that the School Board was not required to act on the interim financing because no property was being pledged.
Noting they were recommending a proposal from RBC Centura, Cole said the interest rate on the interim loan was slightly below one percent. “This would carry you through roughly 12 to 14 months,” he stated.
Bates led with the motion to approve the resolution for the interim financing. His motion drew the board's unanimous support.
Following the action on the interim financing, the BOS conducted a public hearing on the issuance of Virginia Public School Authority General Obligation Bonds for up to $25.1 million for financing the school project.
Williams explained, “So what we wanted to do was to go ahead and hold the public hearing, approve that long-term take-out and interim loan so that when the opportunity comes we've already got our ducks in a row and we can move forward and as quickly through that that process as possible.”
She said the resolution as presented would allow the county to apply for any of the programs available through the VPSA including the traditional tax-exempt program, Build American Bond program, or the Qualified School Construction Bond.
Bates asked whether the resolution would have to come back before the BOS later to set the specific dollar amount of the bonds.
Williams said no and explained, “The way the resolution is set-up, it would not be required to come back to the board.”
For clarification sake, Acie Allen, chair of the school board, pointed-out that the up to $25.1 million did not affect the authority of the BOS in setting a lower dollar amount for the bonds.
Agreeing, Williams offered, “You can do changes to the bond authorization internally.”
Bates questioned, “Basically you are advising the board that we can come back at a later time and lower the amount…”
Williams said the board, if it wanted to, could approve the resolution and only issue $5 million. “It in no way needs to be that $25 million,” she stated.
At that point, with a motion by Supervisor John Kitchen, the board, in a roll-call vote, unanimously approved the resolution as presented.
Later in the meeting, Williams returned to the podium to provide an explanation and overview of a proposed resolution for refinancing courthouse bonds. The proposal included an additional $1,240,890 in new money for financing the county administration complex.
Williams said the resolution would authorize the issuance of up to $12 million in bonds through the Virginia Resource Authority. She added that the actual amount of the request is for $11.15 million at a maximum interest of five percent through the VRA's pooled financing structure.
Cole explained that the VRA offers a number of advantages with long-term fixed rates. He said the VRA is about a month away from selling its bonds and would close that window around Thanksgiving, which is also when the funds would be available. He said the interest rates are currently about four percent.
Cole said the current loan on the courthouse would reset in 2014 at whatever the interest rate would be at that time.
“This will eliminate the need for that rate reset,” stated Cole, noting the county would have the ability down the road to refinance or restructure the debt. He added that VRA has approved the financing through its program.
Bates, a member of the board's finance committee, added that the current financing on the courthouse has a $5 million balloon payment that would be due in 2024.
Cole explained that the refinancing would eliminate that balloon payment as well as resetting the loan in 2014.
Bates offered, “So if we proceed with this course of action, the board of supervisors will be structuring debt in a way that is more stable in the long-haul.” He continued, “And it doesn't tie the board's hands should it decide to pay off early.”
He added that the board would also be able to pay-off some of the debt upfront with approximately $560,000 that was required to be set aside when the initial financing was secured in 2003.
Bates shared, “The board is able to pay-off some of the debt upfront so we are doing something to benefit the taxpayers with this recommendation.”
Supervisor Kitchen asked if the board would have to rescind a motion it made last month authorizing borrowing up to $5.7 million.
County Administrator Rebecca Carter said the resolution Kitchen was referring to declared the county's intent to reimburse itself from the proceeds of a financing for the county administration complex.
County Attorney E. M. Wright added that the resolution Kitchen was referencing was not a borrowing resolution. He clarified that with the proposal, the county would be borrowing $1,240,890 million for the administration complex, not $5.7 million.
Williams explained that the reimbursement resolution is mainly for tax purposes when dealing with tax-exempt loans.
At that point, Vice Chairman Joe Chambers asked about the balance of the courthouse loan.
Cole said the payoff on the courthouse would be right under $9 million.
As the discussion ebbed, Bates led with the motion to adopt the resolution as presented. In turn, a roll call vote drew the board's unanimous support.
