Refinancing to save county $1M
WILLMAR -- Kandiyohi County will save $1 million over the next several years by refinancing two existing bonds.
The savings were much higher than expected and came on the heels of additional news that the county's bond rating had jumped three rungs on the ladder to an AA rating.
"This is really lots of fun," said Carolyn Drude, a financial consultant with Ehlers.
The Kandiyohi County Board of Commissioners awarded bids Tuesday to refinance a $4 million bond issued in 1998 for the Health and Human Services Building.
An interest rate of 2.13 by Robert W. Baird & Co. of Milwaukee, Wis., will save the county $940,898 over seven years.
That's more than double the savings the county expected when the idea of refinancing the bond was first explored.
Last year Drude said the county could save about $447,000 if it refinanced the bond for the building.
In May, she cautiously predicted the savings to reach as much as $800,000 because of the changing markets.
She had no idea the actual savings would be $940,898 until the bids were opened.
The county also refinanced a $1,375,000 highway bond that will save the county $64,347 over five years, bringing the total savings to $1,005,245.
"This is huge," said Commissioner Richard Falk, directing a thank you to Drude, County Administrator Larry Kleindl and County Auditor Sam Modderman.
One reason for the better-than-expected interest rates was because Kandiyohi County was notified on Friday that it had received an AA rating from Standard & Poor's Credit Markets. That's the second highest rating that Standard & Poor's issues.
That sent a signal to investors that the county was a good credit risk, said Drude, referring to the close bids from the six finance companies.
Some firms will bid only if a county is an AA or AAA, she said. "Obviously there was some serious bidding."
Last year Kandiyohi County had been awarded an "A-2" rating by Moody's Investor's Service, which Drude said was "respectable" but not high enough to warrant the more competitive bidders. An A-2 rating is sixth from the top on Moody's rating scale.
Drude said Moody's has been criticized by some because it ranks government entities differently than corporations, to the detriment of government bonds.
Kleindl said Drude recommended having a ratings review conducted by Standard & Poor's.
Kleindl and Modderman underwent a grueling interview and financial review by two individuals from Standard & Poor's.
They had "a lot of questions" on how the county deals with budget and the fund balance, said Drude, adding that Standard & Poor's "puts more emphasis on management" than Moody's does.
"That rating is sensational news," said County Board Chairman Dennis Peterson.
"I would agree the double-A rating from Standard & Poor's is not only helpful for your bond issue but a sign of a lot of really good things for your county," said Drude. "Going with Standard & Poor's worked out very well."
Obviously pleased with the new bond rating and the higher-than-expected savings, Kleindl said if he'd been told a few months ago that the county could save $1 million, "I'd have told them to go fly a kite."
Drude praised the county's financial management that earned the higher bond rating and decision to refinance at this time. "This was very clever of you," she said.
She gave the board a framed certificate with the county's new bond rating.