By Moses Leos III
The possible refund of just over $7 million in certificate of obligation bonds could save Kyle nearly $1 million in interest.
Kyle’s attempt to refinance an existing debt could help minimize the impact Kyle’s upcoming road bond projects could have in the future.
“This is a no-brainer of refinancing,” Kyle Mayor Todd Webster said at the Oct. 21 city council meeting. “It makes sense to me.”
Kyle staff presented the option at the Oct. 21 city council meeting. Council voted 7-0 to allow Perwez Mowheet, Kyle’s director of finance, to initiate the process of refunding the bonds.
A final decision is anticipated for Nov. 18.
The city plans to refund $7.045 million from the Series 2008 Certificate of Obligation bonds. It would save the city approximately $980,000 in interest. Those bonds, which were issued in April of that year, were meant for several uses, including the acquisition of the Wells Fargo Bank building. The facility now houses the Kyle Police Department.
Kyle still has $19.6 million in outstanding bonds from that series. Interest rates range from 3.5 to 5.0 percent. According to Mowheet, the final payment is expected by 2033.
But refunding a portion of those bonds now could allow Kyle to take advantage of a lower interest rate in the future.
It’s a plan Kyle hopes to enact when it issues bonds for the city’s road projects. Seventy percent of Kyle voters approved $36 million in road bonds in 2013.
To accomplish its goals, the city would have to issue new bonds, while placing the original bond into a trust fund.
Perwez said the new bond would be “slightly higher” than the refunded amount. However, by refinancing, the interest rate would be limited to 2.6 percent.
That would allow the city to earn interest and principle to pay for the debt service of the new bond amount.
“It’s structured in a manner that covers the old debt, but also gives us a savings,” Mowheet said. “Had we not done it, we would have paid over $900,000 in interest.”
According to Mowheet, another benefit from refinancing would be to help Kyle improve its bond rating; a rating that was upgraded to A+ by Standard and Poor’s in 2013.
He said that would take away some of the risk investors have, making the city more attractive in the long run.
“It shows our credit worthiness is better than before,” Mowheet said. “When you go to sell bonds, you receive better interest rates, as opposed to someone with lower credit rating.”
The refund could help alleviate the impact on property tax rates from the road bond projects. Kyle has issued $5.5 million in engineering and right-of-way acquisition, and could soon begin issuing bonds for construction costs.
Mowheet said there are no current projections regarding the increase of ad valorem tax rates due to the road bond.
But the city is preparing to lessen the impact of those bonds.
“We’re trying to make it as soft of a hit as possible,” Mowheet said. “We’re doing everything we can … to soften the impact.”
