The city could gain more control should it decide to refinance theater debt and realize significant savings by refinancing its two long-term debt projects.
While refinancing the theater debt would essentially mean the same $1.9 million annual payments on the venue, which is being leased to HSV Entertainment LLC, it would end a confusing variable interest rate included n the original 2007 bond issue to finance the building, said Mitchell Brigulio Jr., vice president of public finance for the Charlotte office of Davenport & Company.
Refinancing the theater at a current 3.5 percent taxable private bank placement would also unencumber the theater to secure a loan. That means rather than the building being used as a collateral, the collateral is assumed to be a pledge of sales tax revenue, tax incremental financing revenue and the debt service reserve fund, according to the Davenport presentation at this evening’s city council work session.
The refinancing, Brigulio explained, is less about savings and more about variables the city can’t control.
Refinancing, he said, would move the city from swapped and un-swapped variable rate debt to a fixed rate debt. It would end the city’s requirement to carry a letter of credit and would eliminate a quarterly remarketing fee.
The end term of the debt would remain the same — 2027 — and the termination fee of $3.8 million would be rolled into the financing.
What has changed since Davenport’s last presentation to council is the two-year lease-purchase agreement with HSV is in effect and the term of the loan is now 14 years compared to 16 years.
Robert M. High, a certified public accountant who serves as first vice president of public finance in Davenport’s Raleigh office, said many banks now are unable to lend over 15 years.
Due to the potential availability of bank financing, the city would have the ability to lock in a long-term fixed rate while maintaining flexibility to pre-pay the loan at any time, a critical factor due to the potential sale of the venue.
Interest rates are at a near or all-time low, the report notes.
Another important factor, Brigulio told council, is the original transaction was done on a taxable basis. “If you look at refinancing and the theater is sold you could refinance on a partial tax-exempt basis.”
Meanwhile, city Finance Director MeLinda Hite explained refinancing options for Fire Station 2, officially named the Mayor D.N. Beale Fire Station, and the Neighborhood Resource Center located on Jackson Street.
The payoff of the fire station is $1,355,536.27 and there are no penalties for early payoff.
The city currently makes an annual payment on the USDA loan of $90,178 with 25 years remaining on a 4.375 percent fixed rate.
Continuing with the current term the total payments would be $2,254,450.
Refinancing this date for an 18-year term and annual payments of $94,521.30 at a 3 percent fixed rate would mean total payments of $1,701,383 that equal a savings of $553,066.60.
Payoff of the Neighborhood resource center is $187,000 and carries no penalties for early payoff, according to Hite’s presentation.
The city currently makes a $20,230 yearly payment with 11 years remaining on a 20-year USDA loan. The fixed rate is 4.375 percent. Continuing with the current term would mean total payments of $222,530.
Refinancing the debt for an eight-year term with $25,522.40 in annual payments at a 2.15 percent fixed rate would result in total payments of $204,179.20. That represents a savings of $18,350.80.
City Manager Joseph Scherer said following the meeting, “I think it’s something that council needs to consider. It eliminates uncertainty and the possibility of increasing debt payments in the coming years.”
Scherer said council needs to review the information discussed this evening before making a final decision.
Mayor Emery Doughtie said the HSV lease and the time lapsed since the last Davenport presentation puts the city in a better position. “I don’t see any risk associated with it. Saving $570,000 to me is a no-brainer.”
