LAWTON – Lower interest rates are prompting Lawton to refinance economic development bond debt from 2019.
In a special session, the Lawton City Council voted 7-0 Tuesday to approve the refinancing proposal. Councilman Jay Burk was absent.
The Lawton Economic Development Authority, which assists the city with economic development projects, had voted earlier Tuesday to recommend refinancing.
In 2006, the city directed the Lawton Economic Development Authority and the Lawton Urban Renewal Authority to move forward with implementing and financing the downtown redevelopment project, according to information from City Hall. LEDA provided funding for the project with a note issued by the city’s banking partners, which was originally for $12 million.
The funds allowed LURA to acquire properties in a 12-block area, which is now known as the Lawton Town Center. That project was developed in a partnership with hotel and retail developers.
In March 2013, LEDA obtained a Series 2013 project note for the maximum principal amount of $31.6 million to provide funds for infrastructure relocation and improvement, along with LEDA’s other responsibilities outlined in the redevelopment agreement.
The 2013 note’s interest rate was originally set at the prime rate plus 1.25%, with a minimum rate of 4.5%. But interest rates rose over the next several years, and the city refinanced the note in 2019 with a lower interest rate.
The interest rate for the 2019 note was based on the prime rate with a minimum rate of 4.5% and a maximum rate of 14%. City administrators said the change reduced LEDA’s interest costs and put the authority in a better position to meet its obligations.
Falling interest rates prompted administrators to recommend refinancing the note this year at a fixed rate of 2.47%, if backed by city sales tax revenues. Officials estimated the lower rate would save the city about $4 million in interest costs.
“Right now, the prime rate is well under that base (of 4.5%),” said Deputy City Manager Richard Rogalski. “And so, that’s kind of why we’re here today.”
The new note would also set payments at a consistent level instead of raising them each year, which is the case with the 2019 note. In addition, the new note would avoid a balloon payment of about $8.7 million when the term ends.
The $27.5 million 2021 Series Note will mature on Sept. 1, 2035. The note will be secured by a three-eighths of one cent (0.375%) sales tax, derived from the city’s annual general revenue sales tax.
The lower interest rate will help the city save money, said Councilman Sean Fortenbaugh.
“Right now, we’re at 4.5 percent, and that’s a variable rate,” he said. “And we’re going to 2.47 (percent), so we’re going to save two percent in interest right away, as we go. That’s several hundred thousand dollars a year that we don’t have to pay.”
The new note will include $1.3 million that LEDA still owes to the Comanche County Industrial Development Authority. Administrators said the current interest rate is lower than 3.14% and repaying the debt would benefit the community.
LEDA borrowed $1.5 million from the Comanche County Development Authority in 2012, at a fixed interest rate of 3.14%, to help pay for building a convention center next to the Hilton Garden Inn. LEDA pledged sales tax revenues from the hotel to repay the note, which has a balance of a little more than $1.3 million.