Council votes to work with Davenport
Published 12:00 pm Wednesday, December 5, 2018
Members of the Kenbridge Town Council voted in favor of hiring Davenport & Company to continue to address the town’s debt service during its meeting Nov. 20.
R.T. Taylor, vice president, also spoke during the council October meeting about resources or options for debt in the town.
Documentation from the presentation Davenport & Company gave to the council in October cited that the the town’s outstanding debt service includes the Virginia Municipal League (VML) and Virginia Association of Counties (VACo) at $1,090,000, Rural Development Loans at $60,403 and Volunteer Fire Dept. obligations at $445,056 for a total of $1,595,459.
The presentation cited that debt service from the Volunteer Fire Department is paid by the department.
Taylor said he requested proposals from banks concerning the debt. He said wo banks returned the proposal with rates, including Pinnacle Finance, which Taylor said is a national bank, and Touchstone Bank, which has a more local presence.
“The rates that they provided were higher by about 40 base points than what we presented last time,” Taylor said. “But that’s not to say they weren’t favorable. They still would produce savings depending on the scenarios you look at.”
Taylor weighed the options provided by both banking companies during the meeting. According to documentation from Taylor’s presentation, Pinnacle provides a tax-exempt interest rate of 4.11 percent and a taxable interest rate of 4.68 percent.
Touchstone provides a tax-exempt interest rate of 4.14 percent and a taxable interest rate of 5.50 percent.
Documentation from the presentation cited that Pinnacle provides the lowest tax-exempt and taxable interest rates fixed through maturity, allows pre-payment any time, in whole, on or after Aug. 1, 2029, without penalty, and if the town sells the Kenbridge Community Center before Aug. 1, 2029, Pinnacle would allow the town to pay off the loan any time within the first 10 years subject to a 3-percent premium.
Touchstone provides interest rates that are fixed through maturity and allows for prepayment at any time, in whole or in part, without penalty.
“It’s about as flexible as it gets,” Taylor said about the pre-payment flexibility from Touchstone.
Taylor, during the meeting, also evaluated three scenarios that could affect how the town could interact with the banking companies. The scenarios evaluated included using an all tax-exempt system, a blended approach and a modified blended approach.
“At the time of the financing in 2007, the original arrangement provided for private ownership of the Kenbridge Community Center (was) for purposes of obtaining tax credits,” documentation from Davenport & Company cited. “The Kenbridge Community Center was subsequently sold back to the Town and would potentially be eligible for a Tax-Exempt refinancing.”
However, Taylor said the challenge lies in the existing and planned private use that currently exists at the facility.
“A portion of the 2007 Taxable Bonds would need to be refinanced on a Taxable basis,” documentation from Davenport & Company cited.
The blended approach would include blending tax-exempt and taxable bonds allocated at a rate of 20 percent and 80 percent respectively.
The third scenario, a modified blended approach, could include refunding the 2007 tax-exempt bonds on a 100 percent tax-exempt basis and refunding the 2007 taxable bonds on a 50 percent tax-exempt basis and a 50 percent taxable basis.
“So I think it’s still good news,” Taylor said during the presentation. “There’s a lot of wood to chop, as they say, we still have to figure out the different allocations, where that lands, and then come back to you and sort of lay out OK, here’s what we determined is the allocation, and here’s what your potential savings would be.”