ADAMS TWP — The coronavirus helped Mars School Board make a healthy financial decision Tuesday night.

Following a presentation by district bond council Anthony Ditka of Dinsmore and Shohl LLP, the board unanimously moved to terminate two bond basis swaps with counter party Wells Fargo Bank.

If timed right, the termination could save the district about $130,000.

“We're getting out of them in a positive way,” said Thomas King, district solicitor.

Members of the board recognized a volatile market, affected in part by the international implications of coronavirus, contributed to the opportunity.

Making a move while interest rates are low overall is a smart move for the district, according to David Fiorenza, economics professor at Villanova University.

“This is a perfect time to do this,” Fiorenza said. “Take advantage of it.”

Basis swapping is a financial term for when two parties trade interest rate payments to meet their needs. A company with a variable — or changing — interest rate might swap for a fixed interest rate to get consistent rate payments.

A company with a fixed interest rate might swap for a variable rate for a chance at getting a lower payment.

The party that swaps for the higher interest rate can try to swap that interest rate with another party.

The payoff: An entity can swap for a lower interest rate.

The risk: An entity can be stuck with a higher interest rate.

“You don't see a lot of it at the municipal level,” Fiorenza said.

Fiorenza, who also is a member of the Government Finance Officers Association of Pennsylvania, is familiar with the Cranberry Township area. He said in Pennsylvania, municipalities have more opportunities for debt management than school districts.

“That's why they have to be more creative when it comes to their debt,” Fiorenza said. “There's more money involved.”

King said local governments sometimes enter into basis swaps to stabilize interest rates.

In the past, Mars Area was no exception.

“These swaps were in vogue back in 2005, when the district did them,” King said. “They've proven to be risky investments.”

Ditka reminded the board Tuesday night that in February, it discussed refinancing the 2014 bond series.

“As part of that, it was discussed that we would have to transfer the ... basis swap that was connected to the 2014 bonds,” Ditka said.

Ditka said additional research conducted after that discussion uncovered an opportunity for the district: The district could get out of the basis swap altogether.

“(It) could be terminated,” Ditka said.

The move could also make the district money.

Basis swaps don't always make money, according to Ditka. Some districts have paid millions of dollars to get out of such agreements. Mars Area is not one of them.

“They've earned us money every month,” said Jill Swaney, district business manager. “We have not been hurt by swaps.”

Now, Ditka said, the district stands to be helped by them if it terminates the basis swaps on 2014 bonds.

“As of Friday ... it was about $107,000 to the school district,” Ditka said. “We're not talking all the money in the world. But it removes the risk of having these basis swaps out there.”

He said terminating bonds the district transferred in 2019 (referred to as 2019 A bonds) would probably add another $24,000.

Required by the state in cases like this, Mars Area's independent financial adviser involved in the resolution is PFM Asset Management. PFM will be the “middleman” checking the plan's pricing for the district, according to Ditka.

Ditka said the notional amount — or underlying value — of the 2014 and 2019 A bonds is about $13.5 million.

“This is a rare opportunity to get rid of these dogs while they're not barking,” King told the board Tuesday night.