County approves loan refinance
Jul. 22—While Cumberland County has enjoyed low interest rates on its debt in recent years, the current market could offer a chance to save a little more.
Scott Gibson with Cumberland Securities proposed refinancing the remainder of a 2016 loan, with potential savings of about $105,000.
"I think we could get the rate down to 1% or less," Gibson told the county's debt management committee July 1.
The loan, issued in 2016 for work at the Cumberland County Jail, had about $3 million left on the principal and seven years of payments. The rate was set at 2%.
"I didn't have much to work with," he said. "Two percent was a really good rate. I think we can squeeze out about $100,000 worth of savings for the county."
Gibson recommended sending banks a request for proposals for refinancing the debt instead of a new bond. Bonds often cost more than bank loans, though they may have lower rates. The size of the loan and time left on the loan did not make that avenue cost effective, he said.
"I'll give them the county audit, the amortization. We'll get proposals back and I think we'll get one below 1%," he said.
Local banks would be included in the request for proposals, he said. Once proposals are returned, the county commission can consider the best rate when it meets July 19.
"I never thought we would take 2% debt and be able to squeeze it down and save another $100,000," he said.
The committee unanimously approved recommending refinancing the loan, and the full county commission unanimously approved a resolution to issue general obligation refunding bonds not to exceed $3.05 million during its July 19 meeting.
The committee also approved moving to the SOFR index for variable rate loans. Gibson explained the county has three loans made several years ago that are tied to the LIBOR index.
"LIBOR is going away," Gibson explained. "It was used for decades. There's approximately $200 trillion-plus LIBOR loans worldwide."
Those rates were set by banks, and regulators have phased it out after concerns of rate manipulation during the financial crisis of 2009. No new LIBOR loans can be issued after early 2022.
SOFR, which stands for Secured Overnight Financing Rate, has been developed in coordination with banks and regulators.
"This new index will take effect when you adopt the resolution," Gibson said. "It made sense to renew the loans and extend them three years and update the index."
Cumberland Securities is working with the lenders to move forward with changes.
"This will get rid of the regulatory issue. On the variable debt, the cost will be the same or a little less," Gibson said.
The panel unanimously recommended the change which was approved unanimously by the full commission when it met July 19.
Heather Mullinix is editor of the Crossville Chronicle. She covers schools and education in Cumberland County. She may be reached at hmullinix@crossville-chronicle.com.
