Finance Director Andrew Huhn said there was consideration given to refinance the bonds a couple of years ago, but staff decided not to. He said by not acting, the town will see almost double the savings in interest. (Stephanie Pawlowski/WJBC)
By Stephanie Pawlowski
NORMAL - Normal will realize more than $2 million in interest savings on one of the bonds issued for work in Uptown Normal.
The council Monday night agreed to refinance the $10 million, 2004 series bond from an interest rate of 4.8 percent to 2.4 percent.
Finance Director Andrew Huhn said the money saved will be put into an escrow account and invested, and financial managers are recommending investment be made in Illinois general obligation bonds. Huhn acknowledges there is concern given Illinois' financial issues.
"We wouldn't recommend it if we didn't think it was a good idea," Huhn said. "What would change our recommendation would be if they were a low grade credit which they are not, they are an investment grade, high grade credit. We are only carrying them for a couple of years and Illinois is working on its fiscal house."
The investment will mature at the same time the bond can be paid off, in July 2014.
Managing Director with Mesirow Financial Todd Krzyskowski said the other option for investing would be U.S. Treasury bonds, which he said are yielding zero. He said the Illinois general obligation bonds are popular, with 15 other communities investing.
"Using Illinois bonds, state of Illinois G.O. bonds and only G.O. bonds in the escrow enhances the savings by roughly $150,000 to the level of roughly $2 million," Krzyskowski said. "So, if you didn't use the Illinois bonds, your savings would come down to roughly to $1.85 million versus $2 million."
Councilwoman Sonja Reece said it's good for Normal, but not the state.
Some of the money saved on interest will be used for road repairs and the rest can be used for something like retiring debt early. City Manager Mark Peterson said there may be other options to refinance other bonds as well.
"People of our community will see a tangible benefit, maybe as soon as next year, from this financial savings that we're realizing, assuming that this refinancing goes forward," Peterson said.
Normal's credit rating is AA 1 from Moody's, at the high end of the AA rating. Standard and Poor's rates Normal at a AA+, and Fitch rates the town with a AAA. Peterson said the town covets those ratings.
Stephanie Pawlowski can be reached at Stephanie.Pawlowski@Cumulus.com.