Denver Public Schools picked the less risky of two financing plans Thursday night as it restructured the district’s pension debt.
The board of education voted 7-0 in favor of converting half of its existing $750 million in variable debt pension certificates into fixed-rate certificates.
Fixed-rate certificates carry little risk but also higher interest rates.
A second option considered would have been to convert one-third of the funds — which would have been less expensive but more risky.
A comparison using the most recent interest rates showed converting one-half of the fund to fixed rates would cost about $2.4 million more a year than converting one-third.
Termination fees for the conversion will be determined by the interest rates at the time the deal closes.
Financial advisers had urged the board to carefully weigh the risks against the cost but noted there is no universally correct answer.
“There may not be a magic bullet, but identifying where all those tensions lie is key,” said board-hired adviser Tim Schaefer at an earlier meeting.
Originally, board members also considered converting the entire $750 million to fixed-rate certificates.
That would have meant the district would have had to cut another $9.6 million from school budgets next year to pay for the deal.
Some board members felt the vote was being rushed because a liquidity agreement with Brussels-based Dexia, which has protected the district from financial risk, will expire in April and won’t be renewed. The recession has made banks reluctant to become stand-by purchasers, so there is no replacement for Dexia.
Without a liquidity provider, DPS would shoulder the risk if the market crashes again.
