Madison eyes refunding city's bond issue
By By Mitch Freeman Madison County Record
Madison's finance committee stands ready to refund the bond issue that provided $10 million in 1995.
City financial advisor Johnny Dill told the finance committee that now is the time to refund the 6 percent bond money while interest rates are low. The committee was quick to act on Dill's advice.
The mayor was authorized to take immediate action upon Dill's recommendation, depending on the prime interest rate. Dill explained two options: conventional advanced refunding or a new concept he referred to as "forward" financing.
"It would result in the biggest savings in Madison's history," Dill said. "I think you need to move quickly."
Dill said conventional refunding at around 4 percent would result in approximately $800,000 in cash. However, by taking advantage of forward refunding, the city could realize double that amount, perhaps as much as $1.6 million.
But, there is some risk involved with the forward approach because it would involve refunding the bond issue for 22 months at the same low rate of around 4 percent. After 22 months, the bond issue would require refunding again at 6 percent.
According to Dill, the worst-case scenario in either case is that the city would recognize at least $800,000 in cash, depending on the interest rate the city locks into.
If rates are below 6 percent after 22 months, the city could use some of the estimated $1.6 million to make up the difference between the current rate at that time and 6 percent. In which case, the city could still be some $800,000 ahead of where things stand today.
The finance committee set a $1.2 million return limit, under which the mayor would not be authorized to exercise the forward option. If the forward option is not exercised, conventional refunding will be when Dill says the time is right to lock in an interest rate. Dill is hopeful the interest will drop below 4 percent and that is when action will be taken.
Finance committee member Ray Stubblefield suggested to other committee members that the cash be put into escrow for use in the future. He said the city couldn't seem to spend the money it has already allocated to projects.