By Joe Pinchot
Herald Staff Writer
The city of Hermitage will realize about $247,000 by taking out a bank loan to refund a 2009 bond issue, netting $100,000 more than officials had been predicting just a month ago.
City commissioners on Wednesday approved refinancing about $2.3 million in bonds and taking out a loan with NexTier Bank.
The savings will be put into recreation and infrastructure projects such as road paving and storm water drainage work, but specific projects have not been identified, said City Manager Gary P. Hinkson.
The city’s bond consultant, Michael Zubasic, managing director of the public finance division of PNC Capital Markets, Pittsburgh, told commissioners in February they could earn about $150,000 in savings by refinancing the bond issue, paying off the old issue then issuing new bonds at lower interest rates.
Bonds are investment vehicles that people buy, with the issuer getting up-front funds for specific uses. The city has issued bonds numerous times over the years for recreation, road and storm water projects.
However, Zubasic also told officials they might get an even better deal by taking out a loan from a bank instead of issuing new bonds. The interest rate on the loan might be higher than on bonds, but the costs would be less, he said.
City officials solicited proposals and received three, finding NexTier’s interest rate the lowest, 2.1 percent, Hinkson said.
The loan will be paid off in 2023 and the city’s cumulative debt service will be the same as it was prior to the refunding.
The actual refunding will be done in May, said bond counsel Lisa Chiesa of the law firm Thorp Reed and Armstrong, Pittsburgh.
“I think it’s a great rate,” said Commissioner Rita L. Ferringer.
The interest rate on the bonds averaged 4.25 percent a year.