ADAMS TWP — Mars Area School Board approved a motion Tuesday night that allows district financial advisers to move forward with making plans for a bond refinancing.
The motion was presented providing that the refunding can supply the district with a debt service savings of $1 million.
Acting as bond council to the district, Anthony Ditka of Dinsmore and Shohl LLP opened the bond discussion with a presentation to the board. Alisha Reesh Henry of PNC Capital Markets LLC spoke as the district's investment banker.
“We show up when there are financing matters to be handled,” Ditka said.
In this case, those matters involve the potential issuing of a 2020 bond series to refinance the district's 2014 series. The motion the board voted on gets things rolling, according to Ditka.
The motion gets work started on it, said Ditka.
“The actual issuance of bonds would take another official board action,” he said.
The bond issue makes “economic sense,” according to Ditka and Henry.
The series would be federally taxable. Tax-exempt bonds only are refundable at their callable date, Ditka explained. The district couldn't complete advanced refunding on a tax-exempt basis.
“The folks who buy the bonds are going to have to pay … federal income tax on the interest they earn,” Ditka said. “So your rate is going to be a little higher.”
Ditka told the board deciding to refund a tax-exempt series with taxable bonds is uncommon. But current market conditions suggest the taxable series would work well for the district.
Savings stay here
The district's current interest rate is 4 percent, which also helps. “This is kind of a perfect, taxable candidate,” Henry said.
The issue's “local effort” — or the portion the district is responsible for financing — is 100 percent. The district wouldn't share any savings from the bond issue with the state, because the state wouldn't be aiding in the refinancing process.
“It is a window of opportunity,” Henry said. “Our job is just to bring this opportunity to you.”
Projected gross savings on the series is $1.091, with a net present value of $929,000.
Henry added savings in two years would double under current tax-exempt rates. This means the district could see savings “north of $2 million,” but would have to wait 22 months before selling bonds.
Henry said the board would need to choose whether it wants to have $1 million today, or wait and possibly have $2 million later.
“In two years, we don't know what could happen,” Ditka said.
Ditka and Henry were approved to arrange a proposal to present at a board meeting in March.