East Hampton Town Sells Refund Bonds to Refinance Debt

Earlier this week, the Town of East Hampton sold refund bonds to refinance a debt originally issued in 2006.

The refunding was for $20,655,000 of principal debt remaining from the original bond issue of $31 million that was supposed to be paid over the next 12 years at an interest rate over 4%.

On Tuesday, the Town conducted a refund bond sale to refinance this high interest debt over the remaining 12 years of the bonds and realize savings in debt service costs.

A totoal of six bids were received for the refund bonds, with the winning bid coming from Morgan Stanley and Co., LLC, who offered a refund package with a true interest cost of 1.878%.

As a result, the Town will reduce its overall debt service costs by $2.3 million in total over the next 12 years.

The bid included a cash offer of $2.1 million in order to reduce the need to refinance the full $20,655,000 so that the Town will need to issue only $18,560,000 in new bonds.

According to Town Supervisor Larry Cantwell, when he took office in January of 2014, the Town had a total debt o $119 million.

“The annual interest and principal payments were a staggering 20% of the total operating budget,” he said. “One out of every $5 of the budget was spent on debt service.”

Since last year, the Town has reduced total debt by $10 million, and plan to cut total debt by $30 million over a five-year period, according to Cantwell.

“We are not only saving about $200,000 per year in debt service payments, but we are also reducing overall Town indebtedness by having to issue only $18.56 million in refund bonds rather than the original $20.65 million we had anticipated,” Town Budget Officer Len Bernard said. “Reducing cost and Town indebtedness is a priority of the Supervisor and the Town Board members. Therefore, this refinancing was a double win for the Town.”

In the lead up to the refund bond sale, the Town had its Aa2 rating reaffirmed by Moody’s Investors Service.

According to the report, the town is expected to maintain a “solid financial position due to its conservative budgeting and strong financial management practices with limited future borrowing planned.”

During the conference with Moody’s, the Town reported its goal of keeping yearly borrowing well below the amount of debt being retired in the year, with the objective of limiting new money borrowing to about $5 million per year.

Moody’s also noted in its report that in 2015 the Town produced a “structurally balanced budget with no fund balance appropriation.”

The sale, which was coordinated between Town staff and the Town’s financial consultants at Capital Markets Advisors, will close on May 6 in the New York City offices of the Town’s Bond Counsel, Hawkins, Delafield and Wood.

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