Altoona Water Authority might save $1.2 million
Work needs to be done to refinance
The Altoona Water Authority on Thursday authorized a consultant to prepare for refinancing a pair of 2010 loans totaling $27.4 million, in hopes of saving perhaps $1.2 million over the remaining payback periods.
The loans, in the form of taxable bonds with 35 percent subsidies to offset the taxes, were used to help pay for renovating the authority’s two sewer plants.
The automatic reduction of the subsidy to about 33 percent through a Congressional budget “sequester,” coupled with currently favorable interest rates, led PFM Financial Advisors of Harrisburg recently to alert the authority to the savings opportunity, said Scott Shearer, managing director of the firm.
Much work needs to be done to prepare for the refinancing, and given the volatility of interest rates, it might not make sense to go through with the deal, and if it doesn’t happen, fees would be minimal, Shearer told the board.
PFM outlined two possible scenarios — a less favorable one that assumes the subsidy reduction already in place for the December 2019 and June 2020 payments is eliminated for the rest of the payback periods and another that assumes the subsidy reduction will remain throughout the payback period.
The general rule is that it makes sense to consider refinancing when savings reach 3 percent, Shearer said.
The authority would save almost 3 percent, or about $807,000 — after fee payments — in the less favorable scenario, according to information provided by Shearer.
It would save $1.2 million after fees are paid, or 4.5 percent, in the more favorable scenario.
Neither PFM nor the authority’s bond counsel would charge a fee “if we need to pull the plug” before refinancing, Shearer said.
If the refinancing occurs, the fees for a variety of services, including insurance, underwriting, credit rating, advertising and printing, would total about $400,000.
The authority board could approve the refinancing in May.
City Council would need to pass an ordinance for the refinancing to occur.