With construction complete on Phase 1 of the Canadian County Expo and Event Center, county commissioners have approved a plan to refinance some $13.25 million in debt – at a lower interest rate.

The Canadian County Public Facilities Authority (CCPFA), comprised of the three commissioners, will issue new “bank-qualified” use tax revenue notes in two transactions – up to $10 million in late December and the rest in January 2022.

“We are getting a lower interest rate and are fixing that rate over the life of the loan,” said Commissioner Dave Anderson, District 2.

“It’s similar to when someone borrows money from a bank for a construction loan. Once the house is built, they secure a permanent mortgage at a better interest rate.”

Financing is being obtained from BancFirst at a fixed 2.8 percent interest rate over 19 years.

To help finance construction of the new fairgrounds, the county secured loans from BancFirst for $10 million in 2018 (at a 3.5 percent interest rate) and $3.5 million in 2019 (at a 3.85 percent interest rate).

The new use tax revenue notes will refinance those 2018 and 2019 notes, which also were bank-qualified – a status that gives lenders a tax advantage. To be bank-qualified, an entity cannot issue more than $10 million in debt in one calendar year.

“That’s why we’re doing it in two separate issues,” Anderson said. “Rather than refinance the two into one, we’re leaving them as two stand-alone notes.”

About 19 years remain on the existing loan, but commissioners have expressed a desire to aggressively retire the debt early.

“We can pre-pay (the new issues) at any time with no penalty,” Anderson said. “We have a fixed rate that doesn’t fluctuate from year to year, and it’s a lower interest rate (2.8 percent instead of 3.6 percent).

“Those points make a difference over the life of the loan.”

Commissioners were advised to refinance now since interest rates are likely to rise.

“We think it’s as low as it’s going to go and we want to lock it in,” Anderson said.

Commissioners discussed their options on Dec. 13 and Dec. 20 with county financial adviser Ben Oglesby and bond counsel Nathan Ellis.

Ellis said this refinancing is treated as a “new issue” – like incurring new debt.

“Fixing a variable rate to a lower fixed rate is good and makes all the sense in the world,” he said.

To keep the bank-qualified option open in 2022 for possible new construction projects, Oglesby said the first part of the bond financing must be closed by Dec. 31.

Under federal tax law, the transactions ($10 million and $3.25 million) must be closed more than 15 days apart or they’re treated as one issue.

The debt is secured by a pledge of Canadian County use tax revenues, which have been averaging about $150,000 monthly.

“Our use tax revenue has been very strong, and I’m very optimistic we’ll have the opportunity to pay at least a portion of that principle off early,” Anderson said.

Use tax receipts have become “much more reliable” for Canadian County since an Oklahoma state law was passed requiring sellers of products (like Amazon) to collect use tax and remit it to the state, attorney Gabe Bass told the commissioners.

“It raised the gross amount (of use tax collections) significantly and it also stabilized it,” Bass said.

Previously, the state of Oklahoma had to rely on consumers to self-report - on their personal income tax returns - those out-of-state purchases that were not subject to sales tax.

Commissioner Marc Hader, District 1, said the benefits of being able to pay off this debt early with no penalty, especially with county use tax revenues expected to grow was a positive.

Use tax is collected on goods purchased in another state for use in the taxing state, in lieu of local sales tax. Use tax applies to purchases made outside the taxing jurisdiction but used within the state.

The county had received another offer through Kentucky-based Truist Bank at a 2.36 percent interest rate. But that note carried a 1 percent pre-payment penalty on the option to pay it off early – but only in full.

“But paying it all off is unlikely,” Anderson said. “BancFirst will let us pay whatever we want to.

“If we have $1 million more in use tax than our payments, we may want to apply that $1 million toward the debt. With BancFirst, we could do that. With Truist, we couldn’t.”

BancFirst-El Reno President J.P. Fitzgerald, at the Dec. 13 authority meeting, said his bank could fix the interest for the note’s remaining term at a lower rate.

“In my mind, we’re issuing no new debt – we’re just modifying those existing terms at relatively no cost,” Fitzgerald said.

It was important for BancFirst to keep the new note bank-qualified for tax savings.

Anderson said it was his strong desire to use a bank in Canadian County for this bond refinancing.

“BancFirst is a community partner,” he said. “They employ Canadian County residents, and they invest in the community.

“If it’s just a little bit more interest at their bank, I believe that it’s worth that to give business to our local banks.”