County Commissioners Approve Bond Refinance

The Board of County Commissioners unanimously approved an ordinance to refinance its 2001 General Obligation Bonds at its meeting on Wednesday.

The county will refinance its bonds through Merrill Lynch at 1.997 percent interest rate, a number that “speaks well for the county,” according to Gordon Walker, managing director for Malvern-based Public Financial Management group which served as the county's advisor for the refinance.

“We had nine firms bid 44 times,” he said of the online bidding structure used to shop for the refinance. “We had some phenomenal bidding.”

As part of the ordinance, the county will also incur a $7.9 million fee to terminate a previously purchased swaption, which allows for an interest rate swap.  Gordon said it was important for the county to pay this fee now as a means of getting the county to a “fixed rate, no-risk deal” on its bonds.

“If the swaption happens we have to refund the bonds with a variable interest rate,” he said. “Given what happened on Wall Street in 2008, I don’t think we should be in a variable going forward. We’re better off from a financial standpoint in doing what we’re doing.”

Commissioner Joe Hoeffel said that, while he supported the ordinance and thanked Gordon for his group’s work, he was upset about the swaptions and wanted acknowledgement that “we made a mistake.”

“I know that it is easy to be critical in hindsight… and there were a lot of municipal governments who did the wrong thing on swaptions,” he said of the county’s earlier decision to enter into swaptions agreements. “But we really made the wrong decision. We terminated two swaptions before and paid $12.3 million, so we’re over $20 million in fees to get out of these deals. That’s $20 million added to the capital program to pay back these banks.”

Gordon said that the county got over $2.2 million up front for joining the swaption in 2005 and that the decision was made expecting higher rates, but the “Wall Street crash” changed the need.

“We protected ourselves against higher rates,” he said. “Unfortunately rates have gone the other way. In hindsight, you are right.”

Gordon said that the currently resolution could also help the county in the long run to continue its AAA negative rating from Moody’s. The county announced that it retained its AAA rating this year earlier in the month.

The next Board of County Commissioners meeting is scheduled for August 31.