City of Richmond sells bonds at lowest rate in history, avoids over $40 million in interest costs

On Wednesday, October 22, 2019, the City of Richmond successfully closed on its $150 million tax-exempt general obligation (GO) bonds, Series 2019A in order to issue new debt for city and schools projects and refund existing debt service for interest rate savings. Through this bond sale, the City is avoiding over $40 million in additional interest payments over the next 20 years, compared to previous borrowing assumptions.

The overall true interest cost of funds for the city’s 2019A bonds was approximately 2.22 percent, which is believed to be the lowest cost of long-term GO bonds for city and schools projects in Richmond’s history other than federally subsidized Build America bonds issued many years ago.

The bond sale follows Mayor Stoney’s meetings with all three credit rating agencies in New York in July. Each firm affirmed the city’s strong bond ratings, attesting to the city’s strong financial management. Fitch and S&P reaffirmed their strong ratings on the city’s 2019A Bonds at AA+, while Moody’s listed the city as Aa2 with a positive outlook. 

The city’s FY2020 general fund debt service budget presumed 4.0 percent interest on the $45 million portion of the bonds for City CIP projects. Based on the 2.2 percent pricing, the annual debt service savings in future years is estimated as $482 thousand. The FY2020 savings will be less, with the first principal payment in FY2021. The $14 million refunding component also achieved debt service savings for the general fund. The measure will save $676 thousand over four fiscal years, including $172 thousand in FY2020.

In terms of funding for the three new schools, $90 million, the majority of the $150 million funding plan for Richmond Public Schools, is now locked in for 20 years. That portion will be paid off in 2040, rather than in 2046. Previous projections presumed a 5.0 percent long term rate as opposed to the 2.2 percent rate. To provide some context for cost avoidance, annual debt service for $90 million over 20 years is $1.55 million less at the 2.2 percent interest rate, compared to 5.0 percent.

Mayor Levar M. Stoney noted, “These savings have the potential to pay off the schools’ debt early and accelerate our capacity to fund city- and school-related capital projects, and the credit ratings underscore Wall Street’s confidence in the city and its financial outlook.”

Lenora Reid, Acting Chief Administrative Officer, added, “Selling these bonds at a historically-low rate really helps position the City well for addressing our capital spending needs and will benefit our citizens for years to come.”