Windham restructures bonds to save town $45,000

By Ed Pierce

Acting upon advice from a bonding agent, members of the Windham Town Council have voted unanimously to restructure some existing bonds which will save the town $45,000 by the time the bonds are eventually paid off.

The Windham Town Council has voted to restructure a
general obligation bond from 2003 to realize savings of
$45,000 for the town. PHOTO BY KEITH MANK

During a Windham Town Council meeting on Jan. 10, councilors were briefed by Windham Town Manager Barry Tibbetts about the potential for significant savings under a proposed bond restructuring plan.

The original bond of $36,333 million was approved by town councilors in 2003 and was used to pay construction costs for a new addition and renovation project at Windham High School. That general obligation bond was refinanced by the town in 2011 for the purpose of realizing debt service savings to the town at that time.

“When we were going through our current bond approvals, our bonding agent looked at it and we have just two payments left on that bond,” Tibbetts said. “But in refinancing it now, the net effect to us is that we can save $45,000 on this bond.”

The refinanced bond amounts to a total of $3,025 million, according to Moors & Cabot, Inc., the town’s municipal advisor for the issuance of the bond, and an investor has been secured for the restructured bonds.

Municipal bonds are a type of debt security issued by local, county, and state governments. They are commonly offered to pay for capital expenditures such as highway construction or for bridges, or schools. The bonds act like loans, with bondholders becoming creditors of the municipality.

In exchange for the borrowed capital, bondholders and investors are promised interest on the principal balance by being repaid by the municipality by the time of the bond’s maturity date. The bonds are often exempt from most federal and state taxes, which makes them attractive as an investment to those in higher income tax brackets.

Types of municipal bonds include general government obligation and revenue bonds. In Windham’s

case, these specific general obligation bonds were issued by a governmental entity and were not backed by revenue from a specific project, such as from a toll road. Some of Windham’s general obligation bonds are backed by dedicated property taxes, while others are payable from the town’s general funds.

Typically, the interest rate of most municipal bonds is paid at a fixed rate and this rate doesn't change over the life of the bond. However, the underlying price of a particular bond will fluctuate in the secondary market due to market conditions and changes in interest rates and interest rate expectations are generally the primary factors involved in municipal bond secondary market prices.

When interest rates fall, newly issued bonds will pay a lower yield than existing issues, which makes the older bonds more attractive. Investors who want the higher yield may be willing to pay more to get it, and a town such as Windham may weigh refinancing a bond to yield savings, such as for this bond.

All bonds must be approved by the Windham Town Council, and some are voted upon by residents during Windham’s Annual Town Meeting every June.

Windham previously issued $19,045 million in advance refunding general obligations bonds on Dec. 15, 2011, as authorized by the Windham Town Council to refinance the debt owed on the 2003 bonds.

This is fantastic,” said Windham Town Council Chair Mark Morrison. “If we can save $45,000, it’s a no brainer.”

Following a brief discussion, Windham town councilors voted unanimously to approve restructuring the bonds as proposed by the bonding agent to realize the savings.

The restructured bond is expected to be paid in full by Nov. 1, 2033. <