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Lathrop selling bonds to save $400K annually

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POSTED July 25, 2013 12:28 a.m.

LATHROP – Restructuring water bonds is a complicated business.

There are interest rates, annual payments and hidden percentage points that when combined almost require an economics degree to unscramble.

But the move that the Lathrop City Council made last week, at the urging of its staff, was easy to translate – sell a few of the bonds that were bought a decade ago and save as much as $400,000 every year.

Over the life of the loan it save Lathrop more than $8 million – $4.2 million of which will come from the sale of the refunding bonds approved by the council last week.

While the approval didn’t directly generate tangible funds, the sale helps refund some of the debt that was incurred when the city purchased more than $32 million worth of water bonds in 2003.

The initial intent of Lathrop’s bond push was to finance the city’s portion of the South County Surface Water Supply Project. But after 10 years of watching trends and usage charts, staff urged the council two months ago to sell a portion of the water that project afforded to Lathrop for $5 million and use the money that remained after repaying a general fund loan – about $3.8 million – to lower the bond ceiling.

When combined with the newest move, the sale will not only reduce the principal but also provide the opportunity for a lower interest rate on the existing bonds. It will also yield annual cash savings.

And the plan approved by council last week called for $17.5 million worth of the original bonds sold in order to make the restructuring possible.

Water rates, which aren’t scheduled to increase until 2017, could increase if the debt covenant – the amount of money required to service the debt – isn’t met. It’s scheduled to increase 10 percent.

A series of moves including a bond indenture, an escrow agreement, a bond purchase agreement and an official statement were approved in order to certify the sale.

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