When is a refunding generally considered worthwhile?

Refunding is generally considered worthwhile when it offers 3-5% Net Present Value (NPV) savings. This range indicates a significant financial benefit from refinancing existing debt obligations. Achieving such savings helps justify the costs associated with the refunding process, including underwriting fees, legal fees, and any associated transaction costs.

In this context, a NPV savings of 3-5% can result in substantial long-term financial improvements for the issuer, leading to lower overall interest payments and improved budget management. It also reflects a favorable market condition where interest rates have decreased since the original bonds were issued, making it advantageous to refinance at lower rates.

Understanding the rationale behind the threshold for considering refunding is crucial for effective debt management and fiscal responsibility. The percentage range for NPV savings helps debt managers assess whether the benefits of a refunding will outweigh its costs, ultimately contributing to the financial health of the issuing authority.