The coronavirus, which has killed nearly 3,500 people and infected more than 100,000 worldwide, has interrupted more than lives. Around the globe, businesses are counting losses and financial markets are plunging, but the uncertainty and volatility may have at least one unanticipated benefit back home.
On Tuesday, following the recommendation of Budget Director Ron Cink, the Baldwin Commission Commission selected a new bond underwriter and authorized staff to refinance its debt service, seeking at least $450,000 in long-term savings.
Cink told the Commission recent “gyrations in the market” led to money fleeing from stocks to traditional safe houses like bonds.
“We had not planned on refinancing any of this, but when you look at the numbers associated with these warrants, we have the opportunity to save the county about a half-million in net present value,” he said.
The county is only looking to refinance its Series 2014 bonds, $10.35 million borrowed for infrastructure improvements with an interest rate of between 2.10 percent and 4.25 percent. At the time the bond is scheduled to be fully repaid in 2039, the county would have spent a little more $16 million. But Cink is hoping to save at least a half-million by refinancing now.
“This is not different than someone refinancing a house from a higher to a lower interest rate,” he said. “It’s a numbers game. You look at what rates you’re paying and what you could get that money for now. If the numbers come back that you can get money cheaper now, it just lowers your payments.”
On Friday, he told Lagniappe the market gyrations and Baldwin County’s potential savings were because of coronavirus.
“I think the coronavirus is driving the market right now,” he said. “It’s crazy, I was watching [the Dow Jones Industrial Average] this morning and it was up 1,000 one day, down 1,000 the next. Ten-year Treasury Notes are down three quarters of a point, then the jobs report came in and the economy added more than a quarter million jobs, yet stock market futures were off 700 points. It defies normal logic. You would think with job growth the market would go up and that would flow money away from bonds, which are a safe haven. But it’s doing the opposite of that.”
As recently as Feb. 12, the Dow closed at a high of 29,551. But as coronavirus spread from China worldwide, the Dow declined to a low of 25,409 on Feb.28, where it only rebounded slightly this week. As this story went to print, it was 25,528.
The bond market has been falling for more than a year, but it accelerated in the past month. The rate on a 30-year Treasury Note was 1.27 percent Friday afternoon, down from 3.06 percent a year ago and a high of 4.735 percent 10 years ago.
“We’re watching this to be able to pull this trigger and save this money that allows the commission rather than apply it to debt service to apply to the programs associated with the county,” Cink told the Commission.
Under the current arrangement, the county is poised to spend about $762,790 on the Series 2014 payment this year, one that increases just slightly through 2039. The Commission selected Raymond James as its underwriter and will have to pay nominal “closing costs” to both the underwriter and a bond counsel, Cink said.
“Until the market settles down and it stops fluctuating so violently, we won’t know where it will settle out, but with the bond market where it is, it’s attractive to refinance,” he said. “I would think a lot of governmental entities are looking at their debt and seeing a lot of opportunities to save.”
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