Loan rate rises as Berkeley plans exit

MONCKS CORNER — The plan to get Berkeley County out from under a risky and expensive water and sewer loan probably won't be ready until next month.

Meanwhile, the interest rates shot up again this week and the county's payments are now double what they were intended to be.

The county's monthly payments on the $36 million loan increased from about $100,000 to $200,000 as of Wednesday, according to numbers provided by Ross, Sinclaire and Associates, the county's financial advisers.

At that rate, the county's cost of over the life of the 23-year loan would double from $1.2 million to $2.4 million.

County Council called two emergency meetings in the past week in which it adopted the first two readings of an ordinance that will opt the county out of the "synthetic fixed-rate loan" it agreed to in 2006, against its financial advisers' advice, in hopes of saving money.

The ordinance proposes that the county switch to a safer and more common fixed-rate loan that officials say will probably cost the county more than $4.5 million when it's all over, and that's not including a $1.9 million fee to buy itself out of the loan.

Supervisor Dan Davis said the council had hoped to adopt the resolution during its meeting Monday but that the county's bond attorneys are still working day and night to finalize a new loan.

"We're trying to fix it just as quickly as we can," he said.

Despite its name, the synthetic fixed-rate loan uses a variable interest rate that is guaranteed by a bond insurance company. The county's payments started going awry last month when the bond insurance company the county used was stripped of its high bond rating as a result of its exposure to the sub-prime mortgage lending crisis.

Officials anticipated the increase in interest rates when its credit rating was downgraded again but not this much. The bond insurance company's rating has dropped even lower than that of the borrower, the county's Water and Sanitation Authority, which officials say is nearly unheard of.

"Surprised is not the word," Davis said. "Shocked is a better word."

Davis and Colin Martin, director of the Water and Sanitation Authority, will propose that the county come up with $1.9 million to buy itself out of the synthetic fixed-rate loan and change to a fixed-rate loan.

Martin said a new loan probably will cost the county an extra $4.5 million for fees and additional interest on top of the $1.9 million buyout fee. He said the authority still is doing a rate study to determine if rates would have to increase to cover the costs.

Davis said it almost certainly will necessitate a rate increase, which was challenged by some board members and critics who pointed to $20 million sitting in the authority's fund balance.

Davis, who was elected to office after the loan was refinanced, said it would be "stupid" to touch the authority's fund balance.

"It would be as stupid to use those funds as it was to issue the bonds in the first place — and as reckless," he said.

He and Martin said the money is basically a rainy-day fund at the suggestion of the county's bond attorneys. Martin said it would be used only for an emergency such as a natural disaster that would potentially cut off income and drain the fund.

Davis and Martin also defended the council's decision to borrow as much as $10 million from the authority to pay off a loan from Santee Cooper and resolve debt with Cypress Gardens but not use any of that money toward fixing the interest rate fiasco. The county later decided not to use the money toward Cypress Gardens and instead subtracted the debt from its fund balance.

Davis pointed out that the money going to Santee Cooper is a loan that the county will pay back. If they spend the money, they don't have any way of getting it back, he said.