A new bank is lending support to some of Centra’s debt, helping the region’s largest employer lower its debt payments.
The Federal Home Loan Bank of Atlanta will add credit backing to a group of Centra bonds worth about $80 million. Although SunTrust already provides backing for the bonds, its credit rating has fallen, making the bonds harder to market.
Without the additional bank, Centra would have to keep paying a higher interest rate, and could risk having to pay off the bonds much sooner than planned, said Lewis Addison, chief financial officer.
The affected bonds were issued in 2004 when Centra borrowed money to help pay for its East Tower, information technology upgrades and other expenses, Addison said. They are sold as variable rate demand bonds with a total financing cost of about 3.5 percent per year, he said.
SunTrust backs those bonds with a letter of credit, which assures investors the bonds are liquid. If they no longer want the bonds, the bank buys them back and resells them to other investors.
SunTrust’s credit backing became a problem this year when S&P lowered SunTrust’s credit rating to A-. At that level, many money market funds refuse to hold the bonds.
“A lot of money markets that were holding those bonds … were required to put them back because (the bonds) didn’t have the required credit rating,” Addison said. About 60 percent of the bonds were sold back to SunTrust, he said.
That triggered financial worries for Centra: If SunTrust holds any bonds for six months, Centra has to repay those bonds within five years, instead of the 30 years originally planned. That could have required Centra to refinance the bonds, but at an interest rate of about 7 percent.
“That’s something that we didn’t want to have happen,” Addison said.
Although SunTrust was able to resell the bonds, the lower credit rating caused Centra to pay a slightly higher interest rate and more fees.
Since this spring, Centra has worked to solve the problem by getting a second letter of credit from Federal Home Loan Bank of Atlanta. That would back up SunTrust’s letter of credit, raising the rating on Centra’s bonds back to AAA, Addison said.
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