Debt Refinancing Memo

On October 6, the Oldham County Fiscal Court approved issuance of $7.8 million of General Obligation (GO) Bonds which are direct obligations of the County. Proceeds from these bonds will be used to refinance the variable rate portion of OCSD’s debt while also extending the maturity of the debt and deferring principal and interest payments for a period of three years. This refinancing was an agreement which OCSD made with the County earlier in the year in order to defer an additional rate increase needed in 2009. The District received approval from the County for a 25% rate increase which was effective on January 1, 2009. The issuance of the GO Bonds accomplishes two important objectives of the District; 1) it mitigates the risk that OCSD currently has to market interest rate increases by fixing the rate on the serial issue of GO Bonds, and 2) it defers the need for an immediate rate increase by deferring debt service payments for a period of three years. As part of this refinancing, OCSD has entered into a Debt Restructure Agreement which directly obligates the District to repay the County for all principal, interest, fees and costs associated with the issuance of the GO Bonds. By having the County issue the Bonds on the District’s behalf, OCSD was able to realize a lower rate of interest than the District could have received on its own thereby saving the ratepayers additional cost. The Debt Restructure Agreement requires the OCSD to make monthly payments to the County in amounts sufficient to cover the next (semiannual) interest and (annual) principal payments due under the GO Bonds issued by the County. These funds will be held by the County until payments under the GO Bonds are due further insuring that the County has sufficient funds to cover those payments. Some County residents had received misleading and incomplete information about the refinancing and expressed concern about the burden ultimately becoming an obligation of County taxpayers. This is simply not true. The debt being refinanced is existing debt in which OCSD is obligated to repay and does not include any new debt obligation for the District. Secondly, the Debt Restructure Agreement between OCSD and the County clearly obligates the District to repay the County for the GO Bonds at no cost to the County. Furthermore, the Debt Restructure Agreement requires the District to set rates such that all of OCSD’s costs and expenses are covered including repayment of all debt owed by the District. It further obligates the County to approve such rates as will be adequate to repay the debt. While the debt restructure allows the District to defer an additional rate increase for 2009 by pushing out a portion of our debt service obligations, repayment of the debt will continue to be an obligation of OCSD’s rate payers and not County taxpayers. Future rate increases will be needed to retire the debt as was the case before this refinancing. The board and management team of OCSD continue to focus on providing reliable sanitation services to our ratepayers at the lowest possible cost while improving water quality within the county. We believe this refinancing to be consistent with that objective.