Council refinance saves city $2.5 million

Enterprise Councilman Al Miller

A proposal to save the city at least $2.5 million moved closer to reality at the Enterprise City Council special called meeting June 7.

The meeting was the fourth meeting that has been held on the possible refinance since it was first brought to the council’s attention in March by David Langham, a municipal investment banker with Mobile-based Intl FCStone Financial, Inc.

The potential savings generated is by the refinance of three of the city’s outstanding general obligation warrants, specifically the 2009, 2011 and 2013 A and B Series federally taxable warrants.

Due to bond market fluctuations, the gross savings at the time of the June 5 work session and subsequent voting meeting was estimated to be about $2.5 million and Councilman Turner Townsend asked that a contingency be added before a vote was taken. “Before we proceed on these next three bond issue ordinances I move that we consider these ordinances contingent upon the resulting bond issue attaining at least a $2.5 million in gross savings,” he said.

“If you recall back to the start of this conversation, the net benefit to you of doing this was right at $3 million,” Langham told the council. “Today it is $2.86 million.

“When we first started this, the interest rate on the refinancing was at 3.75 percent, today it is at 3.85 percent,” Langham added. “The one factor you can’t control is the market.”

“In light of the fact that these issues have been on the table since March, I move that we suspend the rules,” Townsend continued, referring to the fact that with unanimous council agreement an item can be voted on without waiting until the next voting meeting.

Councilman Al Miller cast the single vote against suspending the rules citing the need for more time to study the issue. “I’m always for saving money but I will vote against suspending the rules for the purpose of being able to analyze and look at the three ordinances that we have before us.

“I don’t feel comfortable suspending the rules since we just got this information tonight,” Miller said about the refinance that has been discussed by the council at work sessions since March.

“I think we need to take a lesson from this when things like this are going on we don’t need to be engaged at the eleventh hour,” Townsend replied.

The council held a special called meeting June 7 to address the issue again. At that meeting, Langham told the council that due to the fact that the C series contained an economic development item, it needed to be advertised in a local newspaper for seven days but that the A and B series could be voted on then.

Townsend asked whether the $2.5 million savings would still be realistic since only two items could be voted on that day.

“We had talked about setting our contingency floor at $2.5 million on all three series of bonds,” Langham said. “The 2018C had a contingency of an economic development item that required it to be posted in the newspaper for seven days. Because we did not pass it Tuesday night, that effectively stopped that posting that we had already gone through so we have to go through and run it again.”

The A and B series obligations represented $34 million of the $39 million, Langham explained.

Langham had brought the subject of potential savings to the council at a work session April 3. Research of the city’s outstanding debt obligations resulted in the “identification of several outstanding obligations that present savings opportunities through debt restructuring,” Langham told the council at that work session April 3.

“We have also identified a project fund that is still on deposit in regards to the Series 2013 issue that could possibly assist us with this refinance,” Langham told the council in April.

The 2013 Warrant Improvement Fund has almost $1.2 million in it, Langham said. “On a warrant improvement fund, typically those improvement funds have a 36-month usable life,” Langham explained. “That’s the general rule of thumb. We are slightly out of that 36-month window.

“So that $1.2 million that was borrowed in 2013 ultimately was not spent and does not have a plan to be spent on a project from 2013,” Langham said.

“If that $1.2 million belongs to the 2013A issue, you are paying 4.625 percent interest on it. If it belongs to the 2013B issue, you are paying 5.1 percent interest,” Langham said. “That is $1.2 million that was unused against a project that you are paying interest on. If you were borrowing that money today the interest rate would be significantly lower.”

Langham said that with the council’s approval, he would work with City Clerk-Treasurer Bob Dean’s office to create the paper trail. “We will look at the deposits and what they were spent on and figure out which project the $1.2 million went against,” Langham said, adding that the findings will determine whether the borrowed money is tax exempt or taxable.

“When it all boils down, it looks like you will get $3 million in savings that you are going to receive in the form of lower payments every year,” Langham said.

At that time, the council unanimously authorized the mayor to enter into an agreement with Intl FCStone to finish the due diligence and get a Standard and Poor’s Rating for the city, with the expenditure not to exceed $25,000.

“I do want to point out that this involves a refinancing of about $27 to $28 million in current city debt that will realize savings in excess of $3 million,” Townsend said in April. “So while it looks like we’re spending $25,000 we’ll realize a savings of $3 million and the $25,000 will be included in the bond issue.

“This transaction levelizes our debt, shortens our term, improves our cash flow and it saves us money,” Townsend said.

A council work session is set for today, June 20, at noon to consider voting on the Series 2018-C General Obligation Warrant.

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