Financial adviser recommends terminating 2021C swap, issuing fixed-rate bonds for Bethlehem Area SD

Scott Shears, a consultant with PFM, told the Bethlehem Area School District board on Aug. 11 that the advisory team recommends terminating the interest-rate swap tied to the district's 2021C variable-rate bonds and refunding those bonds with a fixed-rate issue.

Shears said the swap termination and refund would convert about $30 million of the district's roughly $204 million total debt portfolio into traditional fixed-rate debt. He described two options: (1) issue a fixed-rate bond and terminate the swap, or (2) replace the existing variable-rate bonds with new variable-rate notes and keep the swap in place. "The present value cost . . . is about a $886,000 cost," Shears said, adding that the roughly $886,000 present-value cost translates to an increase in annual debt service of about $185,000 a year for roughly six years under current indicative pricing.

The firm also reported a swap-termination amount if done immediately of roughly $2.2 million but said the full financial comparison should be viewed as a package that includes the termination payment and the lower fixed rates available in the current market. Shears said bond-market proposals returned to the district showed Raymond James as the strongest underwriter for a fixed-rate option; Wells Fargo provided the most attractive variable-rate proposal among the variable-market respondents but did not beat the fixed-rate outcome on a present-value basis.

The recommendation matters because the 2021C bonds and their swap represent nearly 15% of the district's debt portfolio and because an action must be taken before a Nov. 1 deadline the advisors cited. Shears outlined a short timeline: the authority will consider a resolution on Aug. 20, the school board could consider a bond-related resolution on Aug. 25, pricing and rating steps would follow in September if the fixed-rate option is chosen, and closing would occur in October.

Board members asked about tradeoffs. Dr. Beck Pulley said she favors the predictability of fixed-rate debt given the district's swap history and other uncertainties. Dr. White asked about timing relative to national political and market uncertainty and how a fixed structure would affect annual budgeting; Shears and other district staff said a fixed-rate portfolio provides consistent annual debt service the district can budget around. One board member, identified in the record as Harry, summarized the tradeoff: "The basic cost would be over 7 years, about $1,000,000, which would add about a $185,000 a year to our annual debt service cost."

Shears and district staff said they will bring a resolution forward to the authority Aug. 20 and expect to present a formal bond resolution to the board on Aug. 25 if the board chooses the fixed-rate path.

Questions remain about final pricing and the exact structure, and advisors said they will keep the business office and board updated if market conditions change before pricing.