SMART approves bond sale to refinance construction debt

The SMART board of directors on Wednesday authorized the agency to sell up to $160 million in new bonds as a way to refinance existing debt and save what staff projected could be more than $3 million per year by taking advantage of record-low interest rates.

The board voted 10-0 to approve the sale, which aims to pay off $137 million in principle remaining on bonds issued in 2011 to speed construction of the passenger rail line.

Refinancing the bond debt was one of several cost-saving strategies that Sonoma-Marin Area Rail Transit pursued after the failure of an early sales tax extension in March. The agency, which also received $15 million in federal aid due to the pandemic, made $7 million in cuts earlier this year to its budget, and planned to spend another $7 million from its emergency reserves. With the new savings, SMART expects to avoid dipping into those rainy-day funds.

“We believe this is an outstanding result in a very, very difficult year,” Erin McGrath, SMART’s chief financial officer, told the 12-member board during its virtual meeting. “It’s been so much bad news for us for so long. We’re happy that it’s going to bring us this operating breathing room that really we need. We now have a very solid path between now and 2029” when the agency’s current guaranteed sales tax revenues expire.

The upper end of the approved bond sale was set at $160 million to cover interest owed on the existing debt through March 2022, as well as to account for possible fluctuation in the market before the deal closes.

The added cushion will also provide SMART with room to establish a reserve fund of several million dollars in case potential investors request one to make them more confident in buying the bonds, said Sarah Hollenbeck of San Francisco-based consulting firm Public Financial Management, who is assisting SMART with the sale.

Under current conditions, SMART expects the bond offering to be closer to $123 million. The agency’s estimated interest rate would be 1.84%, in comparison to the 5% SMART is paying on the current debt.

Transaction costs for SMART are expected to be about $658,000.

“For me, this is a tremendous opportunity for us to jump out there. It is a very good thing to do,” SMART General Manager Farhad Mansourian said Wednesday. “This puts us in an extremely strong position for whatever else COVID can throw at us — not forever, but puts us in a position until the federal government or state government comes back and helps us again.”

SMART board members Gary Phillips, the mayor of San Rafael, and Healdsburg Councilman Joe Naujokas were absent from the meeting.

You can reach Staff Writer Kevin Fixler at 707-521-5336 or kevin.fixler@pressdemocrat.com. On Twitter @kfixler.