A great interest rate might be an understatement.
Thanks to some quick financial reflexes and a whole lot of luck, the Warren County School District will be paying an estimated effective interest rate of zero percent on some recently issued bonds.
Jamie Doyle, director with Public Financial Management's (PFM) financial advisory practice, joined the school district board of directors via teleconferencing at the Physical Plant and Facilities Committee meeting on Monday night to share the good news.
"It was a great team effort," Doyle said of the sale of $23.18 million in qualified zone academy bonds (QZAB) on Oct. 24.
The bonds were issued as a means of funding renovation work at Beaty-Warren Middle School and Eisenhower Middle High School.
In order to take advantage of market conditions, PFM accelerated sale of the bonds and netted the district an interest rate of 4.185 percent, a figure which matches the federal interest reimbursement rate exactly. As a result, everything the district pays out in interest will be reimbursed, leaving the district with net interest payments of zero.
All in all, more than $20.4 million in annual interest payments over the 21-year life of the bonds will be fully reimbursed between now and 2033.
"It was very, very successful," Doyle said. "In hindsight, things did move against us immediately thereafter. So it was really the right time to pull the trigger."
The district is also establishing a sinking fund to further offset borrowing costs. Over the life of the bonds, the district will make payments to the fund, just as though it was gradually repaying the principal amount borrowed. The difference is, since the money is being provided through bond sales rather than a loan, the district will retain the funds in an interest bearing account.
PFM estimates a two percent interest rate on the account which will generate a total of more than $3.69 million for the district.
Combine that with the more than $5.84 million the school will receive in state funding over the life of the bonds and a complete lack of any sort of interest payment on the bonds thanks to federal reimbursement, and you have situation where the district will pay less to fulfill its obligation on the bonds than their sale generated.
"Basically, you're borrowing $23 million and change and paying back $13 million and change," Doyle said.
The district's total obligation on the bonds will be an estimated $13,648,178.38 over the next 21 years. Added to existing debt obligations from previous bond sales of just over $25 million, this brings the district's total repayment obligations to $38,792,271.13.
The district's payments on the more than $38.7 million equates to annual total payments ranging from just under $2.5 million during the first dozen years of the bond's life to under $500,000 during its final three years. The obligation is set to be met through semi-annual payments.