BHUSD Delays Bond Refinance Plan to Select Underwriter

Plans for the to issue up to $50 million in 2012 general obligation bonds to refinance existing bonds have been put on hold amidst concerns about which investment bank would underwrite and sell the bonds.

The Board of Education was scheduled to vote at its Tuesday board meeting on a refinancing plan that would take advantage of current low interest rates to pay off some outstanding bonds issued as part of Measure K, a $90 million bond passed by voters in 2002. The refinancing, which would reportedly save taxpayers $2.5 million, was recommended to the board by Keygent Advisors, the BHUSD’s bond consultant.

In presenting the resolution to approve the refinance plan, Assistant Superintendent for Business Services introduced Kegent Managing Director Tony Hsieh and JP Morgan Chase executive director Gary Hall as the two officials who would lead the bond sale. Board Vice President Jake Manaster immediately questioned why a representative from an investment bank was present.

“It is my understanding that this board has the authority to approve or disprove who will be underwriting and selling the bonds,” he said. “I don’t remember that happening.” 

After hearing that Keygent had recommended JP Morgan Chase as lead underwriter for the bond sale, board President Brian Goldberg asked to delay the vote until the next board meeting March 13.

“We’re a public entity and we have to be very clear on the processes [followed],” Goldberg said. “I understand that this is only a recommendation, but we really need to make sure we are following the exact steps.”

After a brief discussion, the board voted unanimously to table any action, delaying the original refinancing schedule by at least two weeks. According to a Keygent summary on the BHUSD website, the plan called for refinancing about $41 million in Measure K bonds issued in 2005. The district would issue new bonds at a lower interest rate, reducing the bonds’ total debt load from $71 million to $68.5 million, saving $2.5 million.

The effective interest rate paid on the 2005 bonds would fall from 4.95 percent to around 2.69 percent, according to the Keygent summary. The consultants had expected to lock in an interest rate around March 7 and conclude the refinancing by the end of the month.

The delay should not pose any major obstacles to the refinancing plan, Cherniss told Patch.

“The board asked for backup detail behind the recommendation of JP Morgan as the underwriter,” Cherniss said. “We'll be providing them with this data [March 1] and will bring a recommendation to the board on March 13.” 

The Notebook commends board members for ensuring that the process for issuing and underwriting $50 million of bonds is transparent. After the scandal, in which the former district facilities director was found to have multiple conflicts of interest while managing the bond fund, it is imperative for the district to ensure that such mistakes do not occur again.

Manaster put it well when he told his colleagues not to “repeat history.”

“I don’t want any problems with this bond where we find out later that somebody was on the take like they have been in the past,” he said.

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