In order to take advantage of the low-interest rate market, the Township of Berkeley Heights over the summer decided to refinance all of its debt, which resulted in roughly $3.8 million in savings over the life of the bonds.
“The Township now has a comprehensive plan to consolidate and pay off its outstanding debt,” said Berkeley Heights Mayor Angie Devanney. “I thank the Township Council for their input and work in approving this plan. We not only refinanced our existing debt, but we also created a strategy that allows for future capital projects - such as road paving and infrastructure repair - to fit into our annual debt plan, without any large spikes in debt service from year to year.”
After having completed a thorough debt analysis - past, present and future - which also took into account future revenues from current PILOT redevelopment projects, the Township had a sale to permanently bond over $15.2 million, and to finance $24.9 million through a Bond Anticipation Note (BAN). The sale was held in July and resulted in the following savings for the Township:
- $1.3 million by locking in a long-term, 18-year-loan, instead of renewing the loan every year;
- $1.3 million in interest rates that were lower than originally anticipated going into the sale
- $1.2 million in higher premiums
The Township locked in a low fixed interest rate for all debt from previous ordinances for capital improvements and equipment from 2010 through 2018 - a total of $15.265 million - by issuing a general obligation bond for 18 years. This approach is in contrast to one in which a municipality renews the loan year to year, subjecting the township to fluctuating interest rates.
For the remaining outstanding debt, $24.934 million, the Township issued a BAN - or short-term notes - which consists of $18 million in outstanding notes for the municipal complex and $7 million in additional municipal complex debt.
The Bond debt service will be more than $1.3 million less than the original estimate given by NW Financial during its “Debt Analysis of the Township” presentation at the May 29th Township Council meeting. The true interest rate cost will be 2.529827%, versus the originally estimated 3% rate. In addition, the Township received a premium of $827,197.80. Four bidders participated in the Bond sale; Morgan Stanley received the winning bid.
JP Morgan was the winner of the BAN sale, with a rate of 3%, a Net Interest Cost (NIC) of 1.351421%, and a premium of $409,926.83. There were five bidders total – JP Morgan, Jefferies, Oppenheimer, TD Securities and BNY Mellon.
According to the Township bond counsel and municipal financial adviser at the time, those interest rates at the time were the lowest they had seen so far this year.
“Going forward, we will continue to look for ways to lower the cost of financing our municipal debt,” said Township Chief Financial Officer Eugenia Poulos. “One way to achieve this will be to pursue funding through the New Jersey Infrastructure Bank (NJIB) for future eligible wastewater projects; the current NJIB program currently offers 50% interest-free loans.”
“We need to be flexible in our approach, so we can react to changes in the market,” added Mayor Devanney. “We continue to plan large-scale infrastructure projects, which means we need to continually find creative ways to pay for those projects while paying more than the minimum on our debt service year to year.”
In addition, the newly formed Grants Committee is seeking grants to help with financing of major capital projects.