BOUTON - Up to its neck in $140 million of debt, Xenia Rural Water District has a long-term plan towards financial stability.
Xenia's debt workout proposal has been watched closely by bondholders and customers alike over the last few months.
Walt Tomenga, Xenia board president, said the board has approved the plan and is implementing it.
"There'll be changes not only in the rates, but in the corporate structure as well, that we'll be implementing throughout the summer," Tomenga said recently.
The only glitch is one ethanol plant that is holding out on a proposed rate increase.
Tomenga said Xenia is working with the Menlo ethanol plant to get it on board.
Debt workout at a glance
Residential customers - Rate increases of 5 percent decreasing to 3 percent over the next four years.
Commercial customers - Higher fixed rates for businesses, such as ethanol plants.
Lenders - Bank of America, debt forgiveness on most of a $7 million loan; the U.S. Department of Agriculture and Assured Guaranty will refinance loans.
Measures should put Xenia on the path to repaying all debts and loans over a 20-year period.
"We're investigating several options that might encourage them to participate," Tomenga said.
The good news: everyone else is on board with the plan, including Xenia's lenders.
The highlights of the plan include a 5 percent rate increase for residential users, which will decrease to 3 percent over the next four years.
Tomenga said this is significantly lower than the proposed 68 percent hike that was introduced two summers ago. He added that the 5 percent increase will affect 80 percent of Xenia's users.
The other 20 percent may actually see a reduction in their rates, he said.
"One of the objectives of the workout plan is to simplify rates and have uniform rates," Tomenga said. "For reasons I can't explain, rates were all over the board. There is no history to determine why they were that way."
So in an effort to equalize rates, some customers who were enjoying "very, very low rates," as Tomenga described them, may see a 23 percent increase, while one to two areas may see a decrease in rates and the rest will see an increase of 5 percent.
Commercial users are also making sacrifices, as ethanol plants open up their contracts to increased fixed-rate fees.
"Again, I can't explain why, but (the fixed rate) had nothing to do with the actual cost it took to run lines and so forth to the facility," Tomenga said. "What we asked of the three ethanol plants - and we gave them all the documentation - was to agree to pay the new fixed rate."
POET agreed, but felt it was only fair that all complied with the new rates. This is where Menlo's hesitation makes the plan a little sticky.
"That's why we're looking at other alternatives with Menlo," Tomenga said.
He added that lenders have also made sacrifices to ensure Xenia's future financial solvency.
For example, Bank of America is willing to forgive most of a $7 million loan that Xenia borrowed from the company.
"Bank of America made a significant sacrifice," Tomenga said.
Additionally, United States Department of Agricultural Rural Development agreed to refinance Xenia's loan at a cheaper rate with a longer repayment schedule, "which amounts to 20 to 30 percent reduction in what we pay out," Tomenga said.
Finally, the biggest lender, Assured Guaranty, has agreed to a refinance deal similar to the USDA's.
"They'll accept the 'poverty rate' we get from the USDA and extend our payments out," Tomenga said. However, he said Xenia is still working with Assured to assess whether or not they'll pay for the legal fees Assured has incurred during the process.
"Everyone has 'skin in the game,' so to speak. However, we need to get that piece before we can announce the plan is in place," Tomenga said, referring to the Menlo ethanol plant.
Once the plan is in place, it will ensure full payment of bonds and payments to creditors, he said.
"It will get us on the road to financial security, but it will take awhile, probably 20 years," Tomenga said. "It will work after we get everything in place."
On June 1 Xenia was able to pay interest on its bond to Assured in full - about $1.9 million - and to the USDA for approximately $1.2 million.
Tomenga said the board is continuing to put money aside in its sinking fund to continue to pay off the debt. The higher rates, coupled with the refinanced bonds, should reduce the annual payments, making them more manageable for the district.
Contact Lindsey Mutchler at (515) 573-2141 or email@example.com