Red Deer County is taking advantage of falling interest rates to reduce borrowing costs connected to the Junction 42 Partnership Rest Area.
In 2021, the county borrowed $25 million over five years to cover the cost of buying land for Junction 42, building roads and installing utilities and upgrading an intersection. The money was to be recovered through land sales and development levies as the rest area was developed.
However, development has not happened fast enough to cover all of the loan — which has $10.3 million outstanding – before the loan period ends in 2026.
Rather than dip into the county's line of credit to pay off the loan, county number crunchers recommended refinancing the outstanding $10.3 million over 10 years, adding eight more years to the borrowing term.
Assistant county manager Dave Dittrick said the cost of using the county's overdraft would be more expensive than refinancing. The 10-year debenture rate is 1.65 per cent lower than the overdraft's short-term bank borrowing rate.
"We're going to free up $8 million over the next two years that we're not going to have to use our overdraft for," he said.
"This freed up cash flow will reduce the use of short-term bank borrowing at a higher rate and give the county additional financial flexibility to handle short- to medium-term financial demands," he said.
"We're going to be saving money going forward with less reliance on our overdraft."
The move reduces the county's debt servicing costs. "Right now, our debt servicing costs are in excess of half a million dollars a year. We want to lower that down."
Even with the additional interest charges that come with a 10-year loan, the county will save money, he said.
The county remains optimistic that Junction 42 will continue to grow steadily.
About 40 acres and $20 million worth of land is available. About $12 million worth of land has been developed so far, including most recently a major investment by EQUS. The member-owned electricity provider officially opened a new operational facility on a four-acre site last month.
Another deal is in the works and expected to close on Nov. 5 and a couple of other projects are expected to be rolled out in 2025, said Dittrick.
"There is significant interest in the land. The Red Deer market itself has been a little bit soft compared with Edmonton and Calgary in terms of industrial land. But we're seeing some good interest in the land."
