Timing can be everything when it comes to borrowing and the city of Princeton, with help, heeded that to reduce its cost of refinancing four bonds totaling $2.27 million.
The city delayed the refinancing date from the originally planned March 22 date this year to 49 days later on May 10. This was because the interest rates were rising in the weeks between when the council on Feb. 21, 2012, approved the refinancing date of March 22, and when the date arrived.
The average market interest rate for the refinancing on Feb. 21, according to the city’s financial advisor George Eilertson with Northland Securities, was 1.85 percent. Then on March 14 when the city decided to delay the sale of bonds for the refinancing, the average interest rate had climbed to 2.30 percent, Eilertson explained to the city council on May 10.
On April 2 the average interest rate had dropped to 2.17 percent and continued dropping, with the rate at 2.01 percent on April 19, 1.94 percent on April 25 and 1.92 percent on May 10.
The average interest rate to borrow on May 10 was not as low as it was on Feb. 21, but was still significantly better than if the city had refinanced on March 22, according to Eilertson.
He showed that the net savings in refinancing the $2.27 million if it had been done on Feb. 21 would have been $143,740. The net savings would only have been $72,500 on March 14 when the rating call was delayed, which is about half the savings.
Eilertson figured the net savings on May 10 with an average interest rate of 1.92 percent would be $132,499.
“Kudos (to the city) for the good bond rating,” Eilertson told the council. Eilertson noted that the length of terms for paying off each of the four bonds in the package is not changing. The respective years for the maturity of each bond is 2013, 2015, 2021, and 2028.