Frisco ISD recently took advantage of favorable conditions in the municipal bond market and refinanced approximately $184 million worth of outstanding bonds.
The old tax exempt bonds, with an average interest rate of 4.86%, were replaced with taxable bonds with an average interest rate of 2.34%. Taxable bonds, as opposed to tax exempt bonds, refer to the taxes that buyers of the bonds pay on their returns or income as a result of the investment. It does not reference any taxes to be paid by FISD.
The latest refinancing resulted in a total interest cost savings for Frisco ISD of nearly $70 million or just over $3.3 million per year for the next 21 years. The present value savings on the transaction was 29.16%, the most Frisco ISD has ever realized through refinancing.
The transaction will not impact the timeline for repayment. Twenty-one years remain of the bonds’ original 30-year term.
Interest savings creates additional capacity within the District’s debt service portion of the property tax rate, which was lowered from $0.42 to $0.27 in 2018. Based on current taxable values, a savings of $3.3 million per year equates to approximately 0.8 pennies on the debt service tax rate. This savings will help FISD hold the debt service tax rate steady for a longer period of time or reduce the amount it may need to be raised in future years to cover debt expenses. The debt service tax rate depends on a variety of factors including interest rates and taxable values within the District.
Frisco ISD maintains high credit ratings due to strong financial management and a large, diverse and growing tax base. Moody’s Investors Service has consistently awarded the District a Aa1 underlying credit rating. Similarly, Standard & Poor’s gives FISD a AA+ underlying credit rating. FISD bonds are guaranteed by the Texas Permanent School Fund, resulting in an enhanced rating of Aaa and AAA.
In April, the FISD Board of Trustees gave the District the flexibility to respond to volatility in the market in order to achieve cost savings through new bond sales or refinancing. Frisco ISD considers refinancing outstanding debt when the present value of the interest cost savings is at least 5% of the principal refinanced.
Since 2007, refinancing has saved FISD taxpayers more than $300 million in interest costs.
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