SNOW HILL — On the heels of good news earlier this spring regarding Worcester County’s bond rating improving, there was another positive report this week when the County Commission learned that they will be receiving a significant bond premium payment from the bond sale they are using to fund Snow Hill High School (SHHS) construction.
The county was excited to receive the premium with Finance Officer Phil Thompson remarking that nothing like it has happened in years. A bond is considered premium when it is trading above its par value, offering a coupon rate higher than prevailing interest.
“The county received a premium payment equal to almost 10% of the amount bonded from the winning bidder, Wells Fargo Bank, at its March 2014 bond sale, which will be used to fund the Snow Hill High School renovations and addition,” he said. “The receipt of this premium, which is above and beyond the actual amount of the bond, represents the first time in the modern era that the county has received a significant premium on a bond sale and reflects the steadfast demand for the county’s bonds in the marketplace.”
Harold Higgins, County Administrative Officer and former Finance Officer, agreed that he had never seen the county receive such a significant bond premium in at least the last two decades. This March, Worcester learned that Moody’s Investors Service and Fitch Ratings had re-affirmed the county bond rating at Aa2 and AA, respectively, with Standard and Poor’s rating upgraded to AA+. The county was also able to secure a net interest rate of 2.67-percent on the sale of Consolidated Public Improvement Bonds to Wells Fargo, which was much better than the 3-percent or so expected.
All signs are pointing to Worcester having a stronger brand than was originally anticipated, said Higgins.
“For the first time in my 18, 19 years with the county, the success of our bond rating and sale resulted in a substantial bond premium being received for Snow Hill High School construction,” he said. “And we have in the budget received $5 million. We have the ability to take that premium and adjust interest expense in the first two years as well as reimburse the county for any prior Snow Hill construction A and E costs. So based on that, that’s what we’re doing.”
After most likely paying the interest on the debt service in the short term and reimbursing the county for expenses, Higgins said the adjustments made by using the premium will bring everything to “a more realistic environment of costs.”
Commissioner Virgil Shockley clarified the premium will basically pay for the payment that the commission would have made on debt service from the general fund this year.