Three Bonds to be Refinanced Generate Big Savings

By Kim Siebert MacPhail

Finance Director Victor Garofalo presented a proposal to the Selectmen on Monday night to refinance three bonds, saving an estimated $422,873.65 in interest payments over the life of the loans. The three bonded projects from 2005 that are now eligible for refinancing are the DPW building; a land acquisition near Middlesex Turnpike; and the Town Center addition. These loans currently have an average interest rate of 4.032%. The new interest rate would be 2.065%.

The remaining principal and interest on the DPW building under the current interest rate of the loan would amount to $3,184.984.48 over the life of the loan, which will amortize in 2024. Once the lower interest rate is secured, the remaining payments would equal $2,968,868.36, for a total gross savings of $216,116.12 from that one project.

Similarly, the land acquisition project cost before refinancing would be $938,743.75 over the remaining life of the loan. However, with the lower interest rate, the remaining principal and interest would be $873,928.72, saving $64,815.03.

The Town Center project would cost the town $2,167,718.75 if not refinanced to the lower rate. Instead, the principal and interest is estimated at $2,025,776.25 for a savings of $141,942.50.

Selectman Bill Moonan asked Garofalo to explain why these loans have come up for refinancing at this particular time.

“When you sell a bond, it has a call date on it. So you can’t call a bond before an actual ’call date,’ [which is] based on the original sale date of the bond. The first seven years are not considered callable. After that, you can call it, but you obviously want to make sure the interest rates are favorable. You have to achieve at least a 2% savings. [For] these bonds, . .., we would probably achieve about an 8% savings [for the total remaining amount of the principal.]

“And the new bonds will be paid off in the same time frame as the original ones,” Selectmen Cathy Cordes confirmed.

“Yes,” Garofalo said. “The savings, essentially, will just adjust our budgets going forward.”

Before the Selectmen voted to go forward, Garofalo added, “Just to clarify, if we don’t get a favorable interest rate, we can back out of the sale at any time, so we’re not obligated.”

The transaction is planned for the end-of-January.