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City council authorizes staff to pursue sewer bond refinance; officials project roughly $1 million annual savings
Summary
Lake Havasu City leaders said they authorized city staff to refinance callable sewer bonds if market rates meet a staff-determined threshold; officials said a $5.2 million covenant balance will be applied to principal and refinancing could save about $1 million a year without extending the loan term.
Lake Havasu City Mayor Cal Sheehy said on March 7 that the City Council authorized City Manager Jess Knudson and staff to pursue refinancing of callable portions of the city’s sewer bonds, subject to specified market thresholds.
Sheehy said the bonds were last refinanced in February 2015 and became callable after 10 years. Council authorization allows staff to move forward if interest rates fall below a predetermined level that the city set as a trigger for refinancing. The city did not extend the loan term, Sheehy said; the refinance would keep the original maturity date while lowering interest costs.
"The projections right now show that we'll save a million dollars a year on our, just on our debt payments alone with our refinance," Sheehy said. He said the council also authorized using about $5.2 million that the city had held for bond covenants to pay down principal.
City Manager Jess Knudson told the meeting the callable portion of the bonds is roughly $140 million of the city’s outstanding debt package and that the blended interest on callable pockets was about 4.75% at the time of the briefing. Knudson said staff are watching market conditions and would not proceed unless the refinance achieved the council’s threshold; the council signaled a goal to get below 4% and staff said a 3.75% yield would produce roughly $1.1 million in annual savings.
Knudson and Sheehy credited the city’s improved credit rating and internal fiscal management for creating the current refinancing opportunity. Sheehy said the city will apply the $5.2 million covenant balance toward principal and will not lengthen the loan’s term; the result, officials said, will free money for capital improvements and reduce future debt payments.
Sheehy thanked administrative services staff for their work on the opportunity and named Joel Olsen (admin services director), Jamie Masick (accountant) and Trina Ware among staff who helped prepare the package.
The city did not provide, at the briefing, a final refinance contract or a specific closing date; officials said staff will monitor markets and present a final guaranteed maximum price or term sheet to council if the threshold is met.
