When estimating how much Morristown Utility Systems could save in refinancing sewer debt from one fixed interest rate to another, city government’s financial advisor, Chris Bessler, was off by 40 percentage points.
Bessler, senior vice president of Cumberland Securities, said earlier he believed the public utility would save approximately $1 million over a 14-year period if it sold millions of dollars of sewer debt. Bessler prognosticated MUS would improve by about 100 basis points – or 1% percent – on the existing 3.65% interest rate.
MUS sold $12.78 million of sewer debt on June 10. The new interest rate is 2.27%, an improvement of 138 basis points, which will translate into a $1.41 million savings over the remaining 14 years of the debt issue.
“Obviously, the impact on rate payers will be significant over the life of the debt,” Joey Barnard, assistant city administrator said this morning.
Bessler reported the favorable results to Morristown City Council members Tuesday afternoon. Morristown City Administrator Tony Cox told councilmembers that when Bessler communicated the outcome of the bond sale “he could hear him smiling over the phone.”
The better-than-expected sale also saved $40,000 in closing costs, according to Bessler.
MUS will be responsible for retiring the debt with sewer fees. City government must approve – and ultimately guarantee – the debt because a public utility in Tennessee cannot issue debt.
RBC Capital Markets, part of the Royal Bank of Canada, purchased the bonds at the lower fixed interest rate.