By Jim Wilkerson
The Ruston City Council voted on Monday to refinance its Economic Development District #1 (EDD1) bonds with Origin Bank.
These bonds were originally issued for the financing of EDD1, consisting of Ruston’s hotels and restaurants, and the sales taxes collected from those businesses are being used to pay the interest of the bonds.
The original interest rate was 3.07 percent. The new interest rate will be just 1.85 percent.
“This is not a new loan,” Mayor Ronny Walker emphasized to those present. “This is refinancing…We’re trying to take advantage of low interest rates that are out there right now.”
City Treasurer Julie G. Keen further explained, “This resolution will allow the City to proceed with looking to refinance our EDD1 bonds up to $18.5 million. As the mayor says, this is not new debt. This is strictly restructuring debt that already exists.”
“Our bond team has worked hard to look into this,” Keen continued. “And Origin Bank – our current holder in bonds – has negotiated with us a lower rate, which is going to save the City over $700,000 on the remaining life of those bonds. So, we want to thank Origin for working with the City to help us with that refinancing.”
Lucius McGehee, with Argent Advisors (the City’s financial advisor), negotiated the new rate with Origin Bank and is largely responsible for finalizing the deal.
Bond Counsel Wes Shafto, also present at Monday’s meeting, told the City Council that a commitment letter had already been issued by Origin.
“Like all commitment letters, they can only hold that rate for so long. So, we’re trying to get the bond commission to get it approved so we can lock in those savings,” Shafto said.
Shafto explained that when the City originally issued the bonds, there were no restrictions on refinancing. So, the City could refinance them at any time.
“Since the time we issued [the EDD1] bonds, two things have happened,” Shafto said. “One, interest rates dropped in the market. As a result of the COVID pandemic, the Fed slashed rates back to zero. The market has become really favorable for tax-exempt bonds.”
“The other thing,” Shafto continued, “is banks have to judge things based on a credit. When we first issued these bonds, this was a new tax. So, there was no history of collection. When banks go to make loans, they like to see a history of collections…What’s happened [since then] is the sales taxes in Ruston have gone way up as a result of the sports complex and economic development district, among other factors. So, now the bank has a history, and they can rate [the EDD1 bonds] at a higher credit.”
“So, with those two factors – lower interest rates and a credit history – we knew that we could get a lower interest rate for the bonds…Origin went straight to the best rate, and they gave us a commitment letter taking all the interest rate risk out,” Shafto ended.
This is a rare win-win scenario for everyone involved, according to Shafto. It’s a win for the City because it now pays a lower interest rate for the EDD1 bonds. And it’s a win for Origin because the City’s credit stayed with Origin.
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