The Naperville Park District’s board of commissioners will consider refinancing 9-year-old general obligation bonds in mid-June in a move akin to refinancing a home mortgage when favorable terms are available.
The proposal, according to officials, has a two-pronged goal of lowering debt over the long haul and freeing up the ability to borrow more in the short term, if such a maneuver were deemed desirable.
2015 bonds were used for multiple purposes
The district has a remaining principal balance of $6.755 million on the general obligation park bonds that were taken out in 2015.
At that time, park officials used proceeds from the bond sale to fund improvements to the Knoch Park maintenance facility, in addition to assorted playground renovations and a myriad of other capital projects.
Anthony Miceli, senior vice president of Speer Financial, said a caveat within the bond sale gives Naperville park officials the ability to consider refinancing the bonds at this time. The bonds were callable late last year. Speer provides public finance services to the district on a contractual basis.
“They can be called on any date at this point,” Miceli explained during a preliminary discussion at the park board’s most recent meeting on Thursday, May 23. “‘Called’ means we can refinance them, and call them in like you would your home mortgage, and reissue new bonds to replace those.”
Two refinancing scenarios considered by the park district board
Miceli has presented the park district with two possible refinancing scenarios, each shortening the life of the existing bonds to achieve debt savings.
“The thought behind both of these models is that at the moment, the district doesn’t have a need to use that debt capacity in the next two years, but there may be something, down the road, where creating this additional capacity could be beneficial,” Miceli said.
In further explaining the rationale behind the refinancing, Miceli added, “Rather than just do a uniform refunding, and leave things status quo, we could use this available capacity to shorten the bonds slightly, pay them off more rapidly, and then create additional savings down the road, if needed.”
The first of the two scenarios on the table would bring in an estimated $478,308 in total debt savings, or approximately $110,000 in annual savings from 2027-2035.
If implemented, this scenario could bring in $160,000 of the available debt service extension base, or DSEB, for tax levy year 2024 and an additional $370,000 of the DSEB in 2025. DSEB correlates to the limit of principal and interest the park district can levy to pay on loans or bonds annually.
Miceli’s second scenario would bring the district an estimated $566,280 in total debt savings through a few variations from the first scenario, or $140,000 in annual savings from 2027-2035.
DSEB through this model would entail approximately $310,000 in levy year 2024 and an additional $370,000 in levy year 2025.
Park board hints at preferred option
At an upcoming meeting on June 13, the park board could vote on a resolution to set in motion refunding the 2015 bonds and initiate the process of refinancing the existing debt.
When asked by the board if he had a recommendation on which of the two scenarios should be pursued, Miceli endorsed the second one that would net more in total debt savings.
“I think … you, as an Illinois park district, you don’t have many tools at your disposal to finance projects,” Miceli explained. “Your debt service base and your ability to limited tax bonds is really your most important and available tool.”
Regardless of what projects are on the horizon and how they are funded, Miceli said the second scenario has another benefit to the balance sheet.
“It also, from an economic standpoint, shortens the life of a loan,” he said. “It pays it off more rapidly, saves you additional money — even if you don’t do anything to fill that additional levy down the road — beyond 2026.”
The board will have to consider an assortment of administrative fees associated with the refinancing. Miceli explained some of the specific fees that are commonplace with a typical bond issuance, including municipal advisory services and other associated line items.
The full cost of these administrative services will be known once the competitive sale of the newly issued bonds is completed, potentially the week of July 15, if board action is taken on calling up the existing bonds.
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