County decides to refinance debt

By Gary Nelson / gnelson@crossville-chronicle.com

June 26, 2008 03:16 pm

— County commissioners approved three resolutions Thursday morning during a special-called session in order to refinance nearly $60 million of loans.
The move came after commissioners were forced to approve a resolution authorizing the payment of $138,000 in interest costs on debt issues that exceeded budget estimates earlier this month.
Joe Ayers of Morgan Keegan explained to commissioners this was not in any way Cumberland County's fault, but the situation was related the decreased rating of bond insurers due to the effects of the sub prime lending market crisis in the country.
"What happens is the bond insurers get downgraded and the value of the bonds goes down. The interest on them then goes up," Joe Ayers told commissioners.
Commissioners approved the following resolutions:
• Resolution 062608 - 1 — Authorizing the issuance of general obligation refunding bonds of Cumberland County, TN in an amount not to exceed $6,850,000 for the purpose of refinancing a portion of the county's D-5-B loan agreement. This will include taking $1.3 million from the county fund balance to pay part of the loans off and a capital outlay bond from the county's fund balance, to be held by the county trustee, and repaying it over a three-year term. Projects in this loan line include Stone Memorial High School and the Cumberland County Jail expansion.
• Resolution 062608 - 2 — Authorizing one or more loans under one or more loan agreements between Cumberland County, TN and a public building authority in Tennessee not to exceed the amount of $59,750,000 to refinance outstanding loans. The majority of these loans will be refinanced through a bank letter of credit type loan, but some may need to be refinanced at a variable rate bond form. The resolution allows the county mayor to choose which ones to refinance which way. Those decisions are made after consultation is held between the county mayor, finance director and representative of Morgan Keegan.
• Resolution 062608 - 3 — Authorizing the issuance of interest bearing general obligation capital outlay notes of Cumberland County County, TN in a aggregate principal amount not to exceed $5 million.
All commissioners voted in favor of the resolutions except 9th District Commissioner Carmin Lynch.
Lynch voted no against resolution 062608 - 2.
"I have to vote no on it ... I don't feel comfortable giving that amount of variable all the way up to $59 million. Why do that? If so, I think we should readdress it at the county commission level making the decision," Lynch said.
Lynch explained he thought the county should refinance more of the debt at a fixed rate.
Ayers said, "It would be a smaller portion of that amount, certainly not all of it."
He further explained the wording of the resolutions were such in order to meet requirements with state law and they would try to refinance as much as possible at the lowest fixed rate.
Third District Commissioner Lynn Tollett asked Cumberland County Finance Director Nathan Brock how he felt about the situation.
"With this amount of debt of course I'm like everyone and a little gun shy after what happened. It's an area we haven't dealt with before due to some strange things happening on Wall street and coming down to us in Cumberland County ... I feel comfortable with this and Joe's company. I don't feel there's anything we can do to take all of the risk away or out of the factor. Debt has changed in the way it is structured in this country. I'm nervous, but I feel comfortable with the information we have. I support the recommendation being made ...," Brock said.
"We knew about the risk when we chose to do this. I feel like we have been informed by the mayor and Joe Ayers and they have worked with you. I don't think we've been in the dark," 5th District Commissioner Sharon York said.
Ayers said the refinancing would be done soon. It will have no effect on the progress on any of the current or new construction projects in the county.
Commissioners Harry Sabine, 1st District; Terry Carter, 6th District; and Kenneth Carey, 7th District, did not attend the meeting.