BERRYVILLE — A resolution adopted by the Clarke County Industrial Development Authority (IDA) on Thursday will enable Shenandoah University to get a lower interest rate on bonds issued eight years ago.
It also will allow the university to extend the term of the bonds through 2029 instead of 2025.
Shenandoah obtained $7.815 million in bonds through the IDA in December 2011. The money mainly went toward buying the former Quality Inn Winchester at 1017 Millwood Pike, near the campus, and renovating and equipping the former motel for student housing, said Phil Evans, the university’s general counsel.
At the time, neither the Winchester Economic Development Authority nor the Frederick County Industrial Development Authority could help Shenandoah obtain financing because they lacked adequate lending capacity, according to a report in The Winchester Star.
Thursday’s action by the IDA is comparable, officials said, to a modification of a home mortgage between the homeowners and their lender.
North Carolina-based Branch Banking and Trust (BB&T), which has banks in the Winchester area, is Shenandoah’s lender. The IDA is “just serving under federal tax law as sort of a pass-through” for the loan, said Mike Graff of McGuireWoods LLP, a lawyer representing the authority.
As a result, Graff said, the loan legally can have tax-exempt status. That is important, he said, because it enables BB&T to pay no income tax on the interest it earns on the loan, so it can provide the university the loan at a lower interest rate.
The original interest rate was 68% of one month’s LIBOR, the London Inter-bank Offered Rate, plus 0.81%. Following some changes in tax laws, the rate increased to 84.136% of one month’s LIBOR plus 1.0022%, Evans said.
The IDA’s resolution will enable a lower interest rate of 79% of one month’s LIBOR plus 0.96% to be obtained, he said.
LIBOR is an interest rate average calculated from estimates by banks in London of what they would be charged to borrow from other banks.
The IDA’s resolution was necessary because changing both the rate and term of the bonds is considered “a major modification” to the loan, said authority member English Koontz.
Koontz made the motion to adopt the resolution, which was seconded by new authority member Israel Preston.