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‘Out-Of-Box’ Loan Deal Saves Pottsgrove $553,000

POTTSTOWN PA – Taxpayers in the Pottsgrove School District have avoided paying an estimated $553,000 in interest charges and fees to refinance an outstanding loan, the Board of School Directors happily learned Tuesday (June 16, 2015), thanks to what was characterized as out-of-the-box thinking by the district’s bond consultants.

Jamie Doyle, senior managing consultant for Public Financial Management Inc., told directors her firm “saw an opportunity in a slightly different process” and contacted a variety of banks about refinancing $9,990,000 of a loan taken by the district several years earlier. Seven responded, and of those North Carolina-based BBT Bank offered the best deal: a 7-year term at an interest rate of 1.93 percent.

Doyle strongly suggested the board accept the money-saving proposal. Its members didn’t hesitate, and voted unanimously to authorize the transaction.

Normally, Doyle explained, PFM enters such loans into a bond auction, during which banks and other lenders electronically bid to secure the district’s business. But while long-term interest rates remain historically low, she said, “they are up some.” And on the day the auction was to have been scheduled, she added, potential uncertainty in statements by the Federal Reserve could have roiled the markets and raised rates more, Doyle added.

Instead, her firm approached a select group of lenders and requested proposals. Bankers favored the district’s high credit rating, according to Doyle, as well as the fact that the loan was suitably “qualified” at less than $10 million. The district faced little risk, too: if lenders didn’t like what they saw, she said, “there was no harm, no foul” and the auction would have proceeded.

The loan deal “worked exactly as we hoped it would,” Doyle proclaimed. The more than half-million dollar savings results from not only lower interest but the elimination of mounds of paperwork and fees from lawyers, accounts and others associated with creating them. “We’re very pleased,” she noted.

So were directors, who during discussions later that night on the 2015-2016 budget – which ultimately as approved as final – referred to the unspent money as one more reason why they could afford to raise property taxes next year by only 0.55 percent. Board member Rick Rabinowitz argued, unsuccessfully, the savings were among several factors that should have driven the board to avoid any increase.

pottsgrove school district: 'Out-Of-Box' Loan Deal Saves Pottsgrove $523,000Related (to the Pottsgrove Board of School Directors’ meeting of June 16):

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