DONNA — It’s a borrowers’ market right now, and as such, city leaders here are taking advantage of low interest rates to refinance some of the city’s outstanding debt.
In a unanimous decision, the city council approved the re-funding of a series of bonds issued in 2009 to help finance infrastructure work related to the Donna-Rio Bravo International Bridge. Place 4 Councilman Eloy Avila Jr. was not present at the meeting.
“This is a savings opportunity, just how you would refinance your house to a lower interest rate to lower your payments, that’s exactly what we’re doing here,” said David Gonzalez during a July 16 meeting of the Donna City Council.
Late last month, the council approved the hiring of Gonzalez and his firm, PFM Financial Advisors, to be the city’s financial adviser, replacing Hilltop Advisors.
At the same meeting, council also terminated its relationship with its bond counsel, Winstead PC, in favor of hiring Ricardo Perez.
Gonzalez explained that interest rates are currently lower than when the city issued the $5.5 million in debt in 2009. As a result, re-funding the remaining balance can result in a cost savings of over $500,000. “You’re looking at a par amount, of re-funding about $3.47 million of your 2009 bonds. You’re looking at a net present value savings of $519,900,” Gonzalez said.
The bond series was originally financed at a 4.7% interest rate, Donna Finance Director David Vasquez explained after the meeting. If market trends hold, the city hopes to refinance the debt at around 2.33% interest.
“The Federal Reserve may even lower the interest rate even lower, so we’re trying to find the best time to actually re-fund the bond. And that looks like it’s now, or very, very close to now,” Vasquez said.
The re-funding does not change the debt’s 25-year term length or maturation date, which remains February 2034; however, the cost savings can be “front loaded,” Vasquez explained, providing an instant savings by lowering the city’s monthly repayment amount.
Though the financial model Gonzalez presented to the council on July 16 showed what will likely happen if the city sells the bonds in the public marketplace, Gonzalez said the bonds may actually be sold in the “private placement market” for additional cost savings.
The financial advisor also made note of two other potential re-funding opportunities in bonds issued by the city’s two economic development corporations.
“There is also some refunding opportunities in your EDC sales tax A and B, which is about another $600,000 in savings over there,” Gonzalez said.
Those bonds series, too, were issued to help finance bridge-related development.