Rehoboth looking to save money by refinancing loans

Looking to take advantage of interest rates while they’re still low, Rehoboth Beach has hired financial advisor Wye River Group to solicit offers related to refinancing roughly $17 million in loans.

During an Oct. 15 commissioner meeting, city Finance Director Burt Dukes said the Annapolis-based advisor approached the city about refinancing roughly $17 million in loans - $15 million for city hall and $2 million for work done on the city’s Lynch well, located on Route 1 near Holland Glade Road.

Duke said the interest rate on the USDA loan is 2.38 percent, while the interest on the Lynch well loan is 2.76 percent.

“We think there are significant savings to be had,” said Dukes. As an example, he said, Wye River was able to refinance debt for Saulsbury, Md., in September at a rate of 1.038 percent. He couldn’t guarantee that much of a decrease, but, he said, even if they come back with an offer at 1.5 percent there’s still significant savings.

Between attorney and advisory fees, Dukes estimated it could cost the city $50,000 to refinance the loans. Even if the city saves only $500,000, it’s still worth it, he said.

Commissioner Edward Chrzanowski said he had reviewed the analysis by Wye River and he was impressed with what they’ve done for other municipalities. Rates are good right now and a $1 million in savings was probable, he said.

Dukes said it would take up to six weeks for Wye River to solicit offers from banking institutions. If Wye River doesn’t come back with any acceptable rates, the city doesn’t have to proceed any further, he said.

Before anything happens officially, proposals will come back to the commissioners for examination, said Dukes.

Dukes said the city could also issue bonds on the public market, but that would require a bond rating which, he said, the city hasn’t done in 40 years. However, he said, he thinks Wye River might come back with offers from six to eight banks.

There might be quite a few banks in Delaware that want to hold Rehoboth debt, said Dukes.

Even if the city does refinance these two loans, the city will still have one significant loan it’s not allowed to refinance – the one for the ocean outfall.

In an email Oct. 25, Duke said the terms of the outfall loan with Delaware Department of Natural Resources and Environmental Control say the loan may not be prepaid in whole or in part prior to its maturity.  The original amount of the outfall loan was roughly $40.5 million and has about $38.3 million left on it, with an interest rate of 2 percent.