The Denver Business Journal is reporting an astonishing story about the Denver Public Schools paying 6.17 percent interest on $396 million of floating rate bonds that were part of a larger bond offering in 2011. The bonds were issued to fund a required contribution to the school system’s pension fund:
Denver Public Schools finance officials say they aren’t ready to refinance the $396 million variable-rate portion of a controversial $792 million pension bond deal, despite historically low interest rates on municipal bonds.
The variable-rate pension certificates of participation (PCOPs) have performed “better than expected” since they were refinanced in April 2011, said David Hart, CFO of the district.
DPS has paid 6.17 percent interest on the variable-rate PCOPs since April 2011, lower than its anticipated interest cost of 6.42 percent, he said.
The bonds, due in 2037, are rated Aa3 by Moody’s and were issued to refinance an earlier variable-rate bond deal from 2008. The earlier bond offering was backstopped by Dexia, the Belgian-French firm that encountered substantial credit problems. The question for Denver taxpayers: Why is the school district paying such a high interest rate? And why doesn’t it refinance? Current interest rates for comparable bonds at the same rating level and maturity would be 3.99 percent, according to Thomson Reuters Municipal Market Data. The cost difference between 6.17 percent and 3.99 percent for the $396 million in debt would $8.6 million per year, or about $215 million over the term of the bonds. That extra $8 million per year could hire a lot of teachers.