Bond refinancing to save $22M on reservoir debt
The refinancing of bonds that paid for the construction of Rueter-Hess Reservoir will save the Parker Water and Sanitation District $22 million.
The water provider’s longtime bond adviser, Joe Drew, said while officials closely monitored the market, it also took a bit of good fortune to lock in the lowest interest rate in the last 45 years.
The district began running the numbers in June and when Drew made his first presentation in August, the savings were estimated at $12 million. By the time the bonds were sold in mid-November, the savings was locked in at roughly $720,000 per year over the next 30 years.
“I would like to say I’m the smartest guy in the world and knew when to pull the trigger, but the bottom line is there is a certain amount of luck to it,” he said. “(The rates) just kept getting better.”
Voters approved a $105 million general obligation bond in 2004 to pay for the first phase of construction on Rueter-Hess Reservoir. The district later used money from partnerships with Castle Rock, Castle Pines and a handful of smaller water entities to enlarge the reservoir to 72,000 acre-feet.
Drew, who runs Drew Financial, LLC, in Lakewood, said the process is similar to refinancing a home mortgage. The interest rate went from 5.20 percent to 3.51 percent, resulting in a 12 percent reduction in annual bond payments on the Rueter-Hess debt. Rates have since gone back up.
Although there is a cost of issuance at the front end, the district, and therefore its 25,000 customers, will realize $22 million in savings on principal and interest payments on the remaining $88 million in debt.
Because the bond market is a matter of supply and demand, the board’s decision in October positioned the offering ahead of Colorado bond offerings authorized in the November election, including millions of dollars in school bonds that had not yet reached the market.
“The schools couldn’t get them ready fast enough,” Drew said. “The market was exclusive to us.”
PWSD board member Merlin Klotz said when combined with a mid-2012 refinancing of a collection of other debts, the district will see savings of more than $1 million a year in debt service. Total debt service for 2013 is anticipated to be $14.2 million.
The PWSD has been further helped on the reservoir debt by the reemergence of new housing. The general obligation bond promised to first use tap fees collected when new users hook into the water and wastewater system to pay for the debt. When the housing market collapsed in 2008, the onus for repayment was placed on the customers.