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Travis County plans to cut bond debt by refinancing

Wednesday, September 12, 2012 by Michael Kanin

Travis County Commissioners have given their bond advisors the okay to refinance a slice of the jurisdiction’s outstanding bond debt. When completed, the effort will likely save taxpayers between $300,000 to $350,000 annually over 12 years.


As part of the move, the county will offer a set of taxable municipal bonds for public sale – a rare action made possible by unusual current market conditions. Typically, taxable bonds offer investors a higher return via the imposition of a higher interest rate versus their tax-exempt cousins. Local officials are not as restricted on the use of funds derived from taxable bonds as they are with tax-exempt instruments.


However, that paradigm is not reflective of the current situation. According to county bond advisor Ladd Pattillo, lower interest rates allowed county officials to pursue the idea of issuing taxable bonds. “The yield curves today between taxable and tax-exempt bonds are so close that we can actually sell taxable bonds to refund our 2004 refunding bonds,” he said on Tuesday. 


Should market conditions persist, Travis officials could theoretically use taxable bonds as part of their funding efforts for the prospective downtown Civil and Family Courthouse – or any other project that would feature private involvement. The use of tax-exempt bonds precludes participation from private entities.


Pattillo reminded commissioners that he had been watching the bond markets for nearly a year in advance of Tuesday’s pitch to refund the selection of tax-exempt bonds. “Because we collectively didn’t believe that interest rates had any kind of pressure rising on us that we could save money by waiting,” he said. “By waiting until now, we probably saved in excess of $500,000 on negative arbitrage.”


Pattillo and his colleagues determined that now would be the best time to pull the trigger on a deal, and he urged commissioners to give him the authority to proceed.


There is, however, a slight complication. Before moving to their current location at 700 Lavaca, commissioners posted notices for budget and tax hearings with the address of their former Commissioners Court room. Just before Tuesday’s hearing, Travis County Attorney David Escamilla informed the county’s bond advisory team that he would have to seek formal approval for the bond issuance at the old spot. Such a move could delay formal approval for the bonds by two weeks.


Pattillo noted that he would prefer if the commissioners gave him “the thumbs up” Tuesday, so that he could begin the process of getting the county’s bonds to market, something that could take two-to-three-weeks.  In the end, commissioners granted Pattillo the authority to begin a move toward the market in preparation for final approval of the bond sales on Sept. 25.


All told, Travis County is looking to refund roughly $61 million in existing bonds. According to documents filed with commissioners, $23 million of those funds will come from taxable bond sales. The money raised by the sales will go to pay off existing debt.


Pattillo reported that the county had been approached by external firms that hoped to handle the bond sales, in the case of both the taxable and tax-exempt packages.

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