Gateway considers taking advantage of current bond interest rates
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The Gateway school board wants to refund a bond issued in 2012.
During a meeting on Aug. 20, the board hired Piper Jaffray, a Pittsburgh investment banking firm, to secure a favorable interest rate to bring savings to the district on a yearly basis over the lifetime of the existing bond, which is until 2032.
“If you went into a 5% mortgage (interest rate) on a house and the bank gave you 4% … the new payment will be lower over the same period of time. So you save $500 a month because of the lower interest rate. That’s the simple mechanics here,” said Chris Shelby, managing director at Piper Jaffrey.
In Gateway’s case, Piper Jaffrey is going to work to secure an interest rate that will bring in at least $750,000 over the bond’s lifetime, which ends in 2032.
If interest rates don’t rake in at least those savings, the board does not have to refund the bond, said board member Dawn Neilly.
“We still have September’s meeting. We are not locked into paying anybody anything at this point. People can come to that meeting, say what they have to say and as a board … we can still pull out,” said Neilly.
The move comes at a time when the nation’s 30-year and 2-year bond yields have inverted, driving bond interest rates down.
“You are not going to have a bond issue forced down anyone’s throat. It is up to the board,” Shelby told the board. However, Shelby said the move is an opportunity.
“We’re in a terribly unique taxable market. Again, extraordinarily unique as it pertains to treasury rates,” Shelby said, adding that bond interest rates have dropped to near historical lows.
District solicitor Bruce Dice said the move is a grand slam for the district.
Board president Mary Beth Cirucci agreed.
“Our top two responsibilities as board members is policy and fiscal responsibility and budget, and it’s almost irresponsible to not act on something like this,” Cirucci said.
Shelby said, given the volatility in the market, the district could see savings that exceed $750,000 over the bond’s lifetime.
If the board agrees to refund the bond at a favorable net savings to the district, which was set at $750,000 or more, the district will issue a bond for $25 million to replace the one from 2012, said Shelby.
The money that is realized through the refunding can then be used for anything the district wants, Shelby said.
Should the board decide to go through with the refund and issue a bond, an estimated fee of $229,000 would be included in the district’s net savings to pay Piper Jaffray and the bond counsel, Bruce Dice and Associates.
Two resolutions related to the bond refund were approved by the board unanimously. Board members welcomed the public to address them with questions at upcoming meetings in September, which will be held Sept. 10 and 17.