The Point: More funding for transportation improvements in Riverside County will be available through 2039 thanks to RCTC’s successful refinancing of more than $410 million in bonds.
Strong credit ratings and a track record of financial stewardship drove market confidence and a successful bond refinancing this week by RCTC, exceeding original estimates by more than 33%.
The result is $52 million in Measure A funds that will be available to RCTC through 2039 for critical transportation improvements in Riverside County. Similar to a homeowner refinancing one’s mortgage, RCTC capitalized on favorable interest rates and high credit ratings to achieve lower debt payments. RCTC’s financial team estimated RCTC would be able to achieve net present value, or “NPV”, savings of about 7% (on its refinancing of $410,075,000 of bonds; however the investment market’s confidence in RCTC drove the NPV savings higher to 9%, resulting in a greater win for county taxpayers.
RCTC also used this opportunity to reduce its total outstanding debt by $17.3 million. By voter-approved ordinance, RCTC may not be indebted under the Measure A sales tax more than $975 million, making this week’s refinancing key for future flexibility to finance needed transportation projects.
Just days prior, the RCTC Commission unanimously voted to pursue the refinancing on an accelerated schedule. The federal Tax Cuts & Jobs Act approved by Congress this week will remove the tax exemption for such bond sales, effective January 1, 2018, meaning RCTC had only a few weeks to go through the complex process to achieve these significant taxpayer savings.
Last week, S&P Global Ratings and Fitch Ratings reaffirmed RCTC’s credit at AA+ and AA, respectively.
The entire $52 million in savings will not be realized all at once; rather the amount will accrue to RCTC on an annual basis in the form of lower interest payments through 2039 on Measure A debt issued to finance transportation projects.
To learn more about how a bond refinancing works, click here to review the presentation given to the Commission and watch the video below from the Budget & Implementation Committee: