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County considers debt refinancing

Refinancing Washington County’s $31 million debt could provide needed cash flow, but restraint will be required in using that money, at least until the economy bounces back.
“The key is being disciplined,” Mayor Dan Eldridge told Budget Committee members at their Dec. 8 meeting.
Eldridge said Washington County should not expect to see meaningful growth until 2014 or 2016.
“We are 100 percent leveraged on our debt service right now with no growth prospects,” he said.
A lack of county growth required a total of $2.5 million of unappropriated surplus funds from last year be used to balance the 2010-2011 budget, which leaves the county in a deficit before budget talks even begin for 2011-2012.
“Your only option there is to increase rates or cut expenses,” said Charles Stegall, the county’s CPA and accountant.
Commissioner Mitch Meredith likened the county’s actions regarding a lack of a surplus to “pulling money from the future.”
This practice could jeopardize the county’s bond rate and debt servicing if refinancing is needed in the future, Steagall noted.
Members of the Budget Committee continued to discuss the refinancing scenarios offered from Morgan Keegan, the investment banking division of Regions Financial Corp., to restructure the current debt.
One such option will refinance all but the 2007 debt, with $16 million at a variable rate and the remainder at a fixed rate.
The second scenario offers the same refinancing, but with an extended amortization that would provide cash flow.
“Our hands are tied on 80 percent of our debt,” Eldridge said.
Committee members will likely monitor the fixed rate and move funds from the variable rate when the fixed rate reaches an agreed-upon “trigger” number.
Eldridge discussed two possible exposures for the county.
The first is an increase in the variable rate, and the second is a letter of credit renewal risk that would require the county to move to a fixed rate earlier than planned.
“Both risks are manageable, but it will require action now to ensure we are monitoring the fixed rate and ready when the trigger point is reached,” Eldridge said.
The refinancing could provide positive annual cash flow of approximately $2 million on the debt service until 2019.
Commissioner Joe Grandy asked if a portion of the freed-up funds should be set aside for future restructing if needed.
“It’s a good idea if you have that luxury,” Steagall said.
Eldridge proposed members spend more time between now and the January meeting considering the scenarios.
“I definitely think this is the thing we need to do. We’re just building in the safeguards,” said Pat Wolfe, chair of the Budget Committee.
A resolution will be reviewed during the January meeting, and Budget Committee members will determine which scenario to pursue. Action will likely take place during February or March 2011.