Nye County is preparing to refinance one of its biggest sources of debt, the bond taken out a decade ago to pay for the construction of the Nye County Detention Center in Pahrump, a move that could result in a $2.5 million savings over the course of the next 20 years.
The original jail bond amount, according to budget documents filed with the Nevada Department of Taxation for fiscal year 2020-2021, was upward of $21.8 million. This bond was issued in August of 2010 and the final payment date is pegged at August, 2040. The interest payable for fiscal year 2020-2021 was budgeted at $1,163,701 while the principal payable was budgeted at $630,000, for a total of just under $1.8 million. Refinancing the bond, however, could lower the county’s payments by $120,000 per year.
The Nye County Commission addressed an agenda item regarding the possibility of refinancing during its most recent meeting, held Tuesday, Sept. 15.
Nye County Comptroller Savannah Rucker kicked off the discussion by explaining that the county has been discussing a possible refinance of the jail bond for quite some time, noting that following an increase in the county’s credit rating from Moody’s Investor Service, the county was in a good position to secure a reduced interest rate on the jail bond.
John Petersen of JNA Consulting Group LLC, who is acting as the county’s municipal adviser in this matter, attended the meeting via teleconference to walk commissioners through the proposal.
“The plan would be to refinance all of the 2010 bonds that were issued for the jail. At the moment, those bonds are outstanding at approximately $18, 845,000 and in order to refinance those, the plan would be to go out and get refinance proposals from banks and lenders. At the moment, we are anticipating that the borrowing would be just under $18.8 million,” Petersen told commissioners. He emphasized that this was only an estimate to give the commission an idea of the scope of the refinancing and that if the county decided to move forward, the final numbers could differ slightly.
Petersen detailed that the interest rate for the jail bond as it stands today is 4.1% and he believed the refinancing process could secure the county an interest rate of just 3%. Petersen said he would anticipate a $2.5 million savings over the remaining 20-year life of the jail bond, which would be a direct result of a lowered interest rate, for an annual savings to the county of around $120,000 per year.
For those wondering why the county had waited until September of this year to look into refinancing when interest rates have been low for some time, Petersen explained that this was because of certain protections built into the bond when it was first issued.
“The reason that this bond was not refinanced earlier is, when the bonds in 2010 were issued, those bonds included some pre-payment protections for those lenders and those protections did not end until August 2020,” Petersen said.
In the proposal, the county was looking at the possibility of two separate bonds, one of which would be tax exempt. Petersen said this meant the county could borrow at a lower cost because the lender would not have to pay income tax on the interest it receives from the tax exempt bond. The second bond, on the other hand, would be taxable due to the Nye County Sheriff’s Office’s federal contract with Immigration Customs and Enforcement. The tax exempt bond would be just over $12 million while the taxable bond would total about $6.6 million. Annual payments, Petersen said, would then total about $1.24 million per year.
Petersen turned it over to the board for questions and Nye County Commissioner Leo Blundo asked if there would be a new lender and if the end date of the bond would be extended. Petersen said there would be a new lender but the original bond term would not be lengthened. The county would still have the same end date of August 2040.
Petersen said that if the commission did vote to pursue the refinancing, the Request for Proposal process would begin immediately and all financial proposals from institutions such as Bank of America, Well Fargo, Chase Bank and other such entities, would be due on Monday, Oct. 5. That would allow Petersen to return to the commission at its Oct. 6 meeting to go over the final figures. If approved, the refinanced bond would be closed as of Nov. 5.
Nye County Commissioner Debra Strickland made the motion to direct staff to proceed with the jail bond refinancing, seconded by Blundo. The motion passed unanimously.
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