The State College Area School District has made good on a big chunk of the $9 million the school board agreed on to settle a lawsuit over the ill-fated interest rate swap with a Canadian bank in 2006.
On Friday, the school district wired $6 million, the first payment toward the settlement, to the Royal Bank of Canada, business administrator Randy Brown said. The money came from a combination of the fund balance and the general operating fund, Brown said.
The remaining $3 million will be paid out over a period of five years, due each March 1. Next year’s payment will be $800,000, and the four years after that, the district will pay $550,000, Brown said.
Superintendent Bob O’Donnell said in January, when the board agreed to the settlement, the result is unfortunate because the district has nothing to show for the money spent.
At the time in 2006, the board saw the interest rate swap with the bank as a way to finance the State College Area High School renovation project. The board wanted to lock in a low interest rate on $58 million of debt.
The high school renovation project was shelved in 2007 after bids came in over budget, and the board never borrowed the money. Facing a $3 million termination fee, the board extended the start date of the swap another three years.
But interest rates fell, and the cost to end the agreement kept rising. By summer 2010, termination fees would cost the district between $10 million and $11 million.
In August 2010, the district sued, arguing the swap was invalid.
In May 2011, the board did not make the first payment due to the bank of $978,285. The bank sued to recover a $10.3 million termination fee.
The death knell came in October when a federal judge ruled in favor of the bank, saying the swap was valid.
In January, school officials said they opted to settle the lawsuit rather than fighting it in court, which would cost more money to resolve.
The settlement ends up saving the district $1 million it would have had to pay in fees to terminate the swap.
The district will recover $160,000 from financial advisers that were consulted during the swap matter. The law firm of Rhoads and Sinon LLP, which was the district’s bond counsel for the swap, owes State College Area $100,000. Public Financial Management Inc., a financial adviser for the swap, owes the district $60,000.