The New Albany-Plain Local school board adopted a financial policy July 16 that details how the district's bond refinancing process should be handled in the future.

The New Albany-Plain Local school board adopted a financial policy July 16 that details how the district's bond refinancing process should be handled in the future.

The policy was developed in the wake of negative publicity surrounding a controversial bond swap initiated in 2007. The agreement, which also is known as "synthetic refunding," saved $1.3 million overall in the repayment of bonds, according to district officials. However, it required the district to pay $6.125 million in fees this year to get out of the transaction.

The new financial policy will "ensure that the most cost-effective and practical refinancing option is selected" and "debt refinancing will occur only after a thorough evaluation of refunding opportunities."

The policy includes six conditions on bond refinancing, the last five of which are linked together. They are:

* "Refinancing efforts will be done utilizing traditional methods that do not involve complex interest rate swaps or synthetic bond refunding."

* "A refinance will occur solely for the purpose of achieving interest-rate savings; and the maximum term of the refinancing bond does not exceed the term of the original bonds; and the minimum net present value savings on the refinanced bond must be at least 3 percent and $100,000; and the realized interest savings from the refinancing will benefit the district, not the underlying borrowers; and the fiscal officer and the financial review and reporting committee shall review and approve the debt instruments prior to their execution."

The policy was reviewed in June by board members and the financial review and reporting committee.

In 2007, the district sold the right to refinance bonds initially issued in 2001 and 2002 to Dexia Credit Local, a third-party investment company in Europe.

The board members at that time -- none of whom are on the current board -- voted to receive an upfront lump-sum payment of $1.1 million from Dexia in exchange for Dexia's right to refinance the bonds in the future.

The interest rate was fixed between 5 percent and 6 percent, and Dexia was to make payments to the district based on market interest rates, which fluctuate, until Dexia could resell the bonds when eligible in 2011 and 2012.

Emmett Kelly, the district's bond counsel, said that in 2011, Dexia had the district recall the 2000 bonds and reissue $8.1 million in long-term notes. The district had to pay the company based on the bond's original interest rates.

However, when Dexia got into trouble because of the European financial crisis, the school board decided to get out of its contract for this year and paid $6.125 million in fees to close the deal.