The Tamaqua Area School District will save $136,649 through the refinancing of $3.1 million on a series of general obligation bonds.
The district's board of education approved a resolution for the transaction at a special meeting Tuesday evening at Tamaqua Area Middle School.
The 2003 bonds were part of a refinancing of funds used to construct the middle school, which opened in 2000, according to Connie Ligenza, the district's business manager.
The refinancings, in which the bonds are sold off at lower interest rates, resulting in substantial savings in debt service, are nothing new for Tamaqua Area.
"All the bonds from the middle school project have been refinanced at least once, and some are going on a second cycle," said Ligenza.
John B. Kelly of PNC Capital Markets, Philadelphia, who has worked with the district on previous bond refinancings, has been watching the market since last September, waiting for interest rates to reach a favorable level in order to meet the board's threshold of savings.
At the time, the board authorized a parameters transaction with Kelly, approving the basic structure ahead of time so that Kelly could pull the trigger on the deal if interest rates allowed for at least $95,000 in savings.
However, interest rates began to rise again, and the district even moved toward lowering their savings threshold to $75,000, concerned that the market might not move close enough for a deal.
Conditions have since moved back in the district's favor.
"In December, the rates came down, and the parameters have improved enough for the district to realize over $135,000 in savings," Kelly told the board.
School board President Larry A. Wittig had a question over the bonds' rating, which was A-1 with a negative, but Kelly said that rating is based on the state's budget for school districts.
"Pennsylvania school districts are backed up by the state Intercept," explained Kelly. "If you miss payments, the state treasury pays the debt service, then deducts it from your subsidy. All school districts get exactly the same rating."
Kelly said the district would realize $132,472 in savings for fiscal 2011, as well as receiving $4,177 more in April.
"The total savings is close to $137,000, and it will be over 3 percent in savings," he said.
The district hired attorney Robert Moore of the law firm of Mette Evans and Woodside, Harrisburg, to serve as bond counsel for the transaction. Bond counsels are necessary in order to certify that the bonds being sold are legal and tax exempt, said Kelly.
Moore said the district is selling the 2003 bonds at an interest rate of 0.7 percent, refinancing the rate of 3.35 percent.
"It is like refinancing a mortgage," Moore added.
PNC is purchasing the bonds, with TD Bank as the paying agent. The state Department of Community and Economic Development (DCED) must approve the sale. The transaction will be closed on April 15.
Kelly also recommended the district purchase bond insurance to go with the refinancing.
"We have to sign a certificate that it (insurance) was economically beneficial to you," he stated. "It is cost effective," added Moore.
Wittig suggested using the savings realized from the refinancing for the district's capital projects fund so that some projects can be tackled. He mentioned work being needed on the high school girls' locker room.
Treasurer Daniel E. Schoener said the funds from the refinancing would be built into the district's 2010-2011 budget.