The Sandy Springs City Council is seeking to refinance the bonds on its City Springs civic center to save taxpayers millions of dollars — if the volatile market of the pandemic period will cooperate.
In 2015, the council and the Public Facilities Authority, the city’s property ownership organ, issued roughly $159 million in bonds for City Springs, which opened in 2018. Now, with an April 21 vote, the council will allow its financial advisors to seek refinancing of the bonds to lock in a lower interest rate for city taxpayers.
“Our recommendation is to basically refinance the bonds to a point where there are at least 1.5 dollars in savings to [every dollar in] what we call negative arbitrage — that’s the negative carry in escrow,” said Courtney Rogers, senior vice president of Davenport & Company, the city’s financial advisor.
The current coupon rates on the bonds — the amount of interest the bond owner receives — are 2.25% to 5%, according to the city. Mayor Rusty Paul said in a press release that recent market rates have dipped as low as 1.2% and that refinancing could save the city as much as $500,000 a year.
In the world of municipal bond issuing, cities will often refinance existing bonds by issuing a new set of bonds at a lower interest rate. They invest the revenue in an escrow account from which the city collects interest.
In approving the resolution by a 6-0 vote, the council authorized Rogers and his staff to begin preparations for issuing the new bonds once they find an interest rate lower than what the city would earn in escrow. However, with the COVID-19 pandemic causing extraordinary volatility in the bond market, finding a favorable rate may be more easily said than done.
“At the end of February, we talked to our staff and felt this thing was ready to move forward. You all heard that message on March 3 and gave us permission to move forward,” Rogers told the council. “Unfortunately, over the next week, the stock and bond markets went south on us. The municipal bond market basically froze up and rates rose.”
Given the current volatility of interest rates, combined with a low Federal Reserve Fund Rate encouraging banks to borrow, bond issuers are currently hard-pressed to find attractive rates from either buyers or escrow agents. With roughly $151 million of the original $159 million issuance still remaining, Rogers and his staff will attempt to find favorable rates under which to issue the new series of bonds. The company would then submit a proposal to the council for final approval at a public hearing.
The new issuance is not to exceed $198 million. The 2015 bonds mature on May 1, 2026.
“Our objective is the 110,000 people who live in the city of Sandy Springs, and saving them the most money we can,” said District 5 Councilmember Tibby DeJulio.
–Will Woolever