Sweetwater Authority says it will save its ratepayers about $2.7 million over the next six years through a bond refinance.
The water agency in 2005 used a $37.7 million bond to upgrade its water treatment plant and repair water mains. It made payments on these bonds with a 4.09 percent interest rate.
That bond was recently refinanced through Fidelity Capital Markets with a lower interest rate of 0.87 percent.
“Our financial advisers were surprised it [the interest rate] was as low as it was,” said Rich Stevenson, director of finance at Sweetwater Authority. “So it really benefits the rate payers that we’re saving on these interest costs every year.”
Refinancing a bond means that Sweetwater Authority was issued another bond at a lower interest rate with all the proceeds from the new bond going toward paying off the 2005 bond. These bonds received tax deferred status, so when investors bought them they did not pay taxes on the interest.
“For the municipal market for debt, it was a pretty strong market for us to refinance,” he said.
The refinanced bond closed on July 28, meaning all the contracts and paperwork have been finalized. The water agency started the process in looking to refinance in January. Sweetwater Authority went through a competitive bid where nine investors placed bids to refinance the bonds.
Ultimately Sweetwater Authority settled on Fidelity Capital Markets because they offered the lowest interest rate, Stevenson said.
Every year since 2005 Sweetwater Authority paid about $3.9 million in debt payments. With the new refinanced bond, debt payment has been reduced to about $3 million a year, which is a savings of about $900,000 year with about about six years left to pay off the bond. Over those six years, Sweetwater Authority saves about $2.7 million.
Stevenson said about $17 million remain left for the bond to be paid in full.
Sweetwater Authority’s board of directors early this year voted against raising water rates for their customers. Stevenson said a bond refinance helps against the increase of any rate in future years.
“If there is a need for a rate increase in future years, this refinancing will actually lower any need for a rate increase,” he said.
The way it saves money, Stevenson said is that Sweetwater Authority usually pays its bonds from the water rates collected from all of their water users.
Sweetwater authority provides water service to National City, Bonita and western and central Chula Vista.
