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KHS Building Corp. Meets to Discuss Bond Refinancing
March 18, 2009 - Convening for the first time in several years, the Knightstown High School Building Corporation, a nonprofit entity formed in 2001 to oversee the construction and financing of the new high school, met last week to learn more about debt refinancing options.
The focus of the special meeting, held March 10 at Charles A. Beard Memorial School Corporation's central office, was on the benefits of refinancing a $10 million bond issue that helped finance construction of KHS. According to a financial consultant who had previously given presentations to the CAB School Board, refinancing could result in savings over the life of the debt and possibly make a little over $2 million available now for further construction or capital improvement projects.
Going through the same basic information he first provided to the school board last September, Lonnie Therber of Therber & Brock in Indianapolis said refinancing the bonds -- a process called "refunding" -- would itself result in savings. Proceeds from a new bond issue would be used to payoff the original bonds and the costs of issuing new ones, with the savings coming from lower interest rates on the new bond issue.
Perhaps the most important benefit of refinancing the bonds, which are now due to be paid off in 2022, is that it would give CAB access to $1.265 million being held by the KHSBC in a sinking fund. Now serving as security on the outstanding bonds, Therber said this money would become available for use at KHS if the bonds are refinanced; if CAB does not refinance the bonds, the $1.265 million would simply be used to pay off the original bond issue a little early.
It was also pointed out at last week's meeting that CAB is paying a higher interest rate on the current bond issue than it's earning on the $1.265 million in the sinking fund. CAB Superintendent Gary Storie said the money is earning interest at about one percent, while the a handout Therber prepared shows the interest on the outstanding bonds at 4.6 percent.
Last September, the CAB School Board passed a resolution agreeing to refinance the bonds if current interest rates allowed for savings of at least $100,000 over the life of the debt. Before the refinancing can move forward, however, the KHSBC is also required to pass a similar resolution.
According to Therber, interest rates went through "a pretty ugly period" last fall, and it would not have been possible at that time to achieve the $100,000 in savings required by the school board's resolution. While rates fell again in February to a level that would have brought about $90,000 in savings, he said they had once again gone up.
At last week's meeting, Therber said that at current interest rates, which were 3.9 percent the day of the meeting, the realized savings would only be about $65,000. With interest rates fluctuating daily, he said the best thing to do may be to simply get in position so that quick action can be taken when the rates are once again favorable and able to produce the needed $100,000 savings.
If CAB does move forward with refunding, Therber said the school corporation would also have the option of extending the payback period an addition two years, from 2022 to 2024. Doing this, he said, would allow CAB to gain access to about another $800,000 that could be used now on projects at KHS or CAB's other buildings.
Jeff Weiland, KHSBC vice president said he thought the refinancing of the bonds was a great idea that would allow CAB the opportunity to address present needs. Failure to take advantage of the refunding option, he said, could actually be seen as "very irresponsible."
KHSBC member Cindy Huffman also said she thought the refinancing seemed like a good idea. She said she "can't see not doing something."
As for extending the repayment period another two years, however, Weiland said he thought it might be hard to convince the public that's a good idea. Asking if using the $1.265 million to retire the bond debt early would have much impact on reducing CAB's annual $713,000 payments on the bonds, Therber told Weiland the impact "might be more than you think."
CAB School Board Vice President Steve Dalton, who attended last week's meeting along with four other school board members, said he didn't think paying down the debt early, or adding an additional two years, would have much effect on CAB's tax levy. However, he said the access to the $1.265 million that comes with the refunding, as well as the additional $800,000 from extending the repayment period, would help CAB now.
Storie told the five KHSBC members who attended last week's meeting that the school board presently has no specific plans for how to use any money that would become available. "This is all very speculative at this point," he said.
Weiland said the KHSBC had, at one time, established its own set of priorities with respect to any future projects funded by money left from the KHS project. The first priority, he said, was to address athletic facility needs, followed by installation of air conditioning at elementary schools, and, finally, a "serious overhaul" of KIS.
According to Weiland, when KHS was being designed, plans had been drawn up showing a proposed layout that included additional athletic facilities on the KHS grounds. He said these plans also included a new administrative building and new elementary school at that location as well.
Weiland said it will be important for the public to understand that any money that comes from a refinancing of the bonds would be for "bricks and mortar" projects. It could not, he said, be used for things like salaries.
"I'm all about making everything crystal clear," Weiland said at one point in the meeting. "... I want everyone to know what's going on." He said the KHSBC has no "secret agendas."
Storie replied that the school board feels the same way. He said the school board current strategic planning efforts will likely help them set their own priorities for use of this money, and said they want to get input from all of CAB's interested stakeholders.
At Weiland's request, Storie said he would have CAB's bond counsel review the KHSBC's bylaws and make sure everything is in order. Storie also said he would have the attorney draft a resolution like the one approved by the school board.
Another meeting of the KHSBC was tentatively scheduled for Thursday, March 19, at 6 p.m. in the school board meeting room at CAB's central office, 345 N. Adams St., Knightstown. This meeting is open to the public, who are encouraged to call CAB at 345-2292 to confirm the meeting time and location.
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