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Reduce Rate Impact by Paying Off Bonds

By Doug L. Baldessari, CPA, Partner, October 18, 2018

Utilities in the Midwest and across the country are facing ever increasing pressure on utility rates. The rate pressure is the result of a variety of factors, including long-term control plan implementation, asset management replacements, operating increases and declining usage because of water conservation. These mandates and other increases in requirements are pushing the affordability limits of water and sewer utility rates. What can be done to help?

When facing necessary utility rate increases, reducing your fixed bond payments by paying off the bonds may be a valid consideration.

Assuming you have been diligently setting aside revenues and saving cash, one option might be to redeem or pay off your bonds early. However, most municipal bonds have standard call provisions which will not allow for the bonds to be paid off until they have been outstanding for a certain period of time. There also may be some redemption premium.

When considering this option, an important consideration is the need to keep adequate cash balances. Most bond documents have cash balance requirements for outstanding bonds and there should be adequate funds set aside for unforeseen capital expenditures and contingencies.

Many things must be considered before you payoff bonds, so you should ask your municipal advisor to provide you with the information needed to make this decision.

If you need assistance, please don’t hesitate to contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.


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