City of Richmond sells bonds at lowest interest rates in history
Sale allows city to save more than $41 million in additional interest costs over next 20 years; reduces payment period for new school construction by five years
Follows reaffirmed AA+ bond rating by Fitch and Standard & Poors, Aa1 rating by Moody’s
Based on a competitive bidding process finalized on November 19, on December 10, 2020, the City of Richmond will close on its $103.5 million tax-exempt General Obligation (GO) Bonds, Series 2020A in order to issue new debt for city and schools projects, and its $51.6 million taxable Series 2020B bonds to refund existing debt service for interest rate savings.
Through the tax-exempt bond sale, the city is avoiding about $41.6 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 2020A Bonds was approximately 1.42 percent, which is the lowest cost of long-term GO bonds for city and schools projects in the city’s history, other than federally-subsidized Build America bonds issued many years ago.
The bond sale follows the city administration’s virtual meetings with all three credit rating agencies, and then the affirmation of the city’s strong bond ratings from each firm attesting to strong financial management. Fitch and S&P reaffirmed their strong ratings on the city’s 2020 GO Bonds at AA+, while Moody’s listed the city as Aa1, consistent with a recent upgrade.
The city’s FY2021 general fund debt service budget presumed 4.0 percent interest on the $50 million portion of the bonds for City CIP projects. Based on the 1.42 percent pricing, the debt service expenses over the next 20 years is estimated to be $15.4 million less than it would be at 4.0 percent.
In terms of funding for the recently completed three new schools, $60 million (the remainder of the $150 million plan for Richmond Public Schools) is now locked in for 20 years. That portion will be paid off in 2041, rather than in 2046, per previous projections that also presumed a 5 percent long term rate. To provide some context for cost avoidance, debt service for $60 million over 20 years is $26.2 million less at the 1.42 percent interest rate, compared to 5 percent. This cost avoidance will alleviate long term pressure on the 1.5 percent meals tax levy that has been dedicated to fund the three new schools and has been negatively impacted by COVID-19.
The refunding components of the 2020 bonds will result in over $5 million in debt service savings over the next 15 years.
“These savings will allow us to pay off debt from the construction of three news schools early and be better prepared to fund future city- and school-related capital projects,” said Mayor Stoney. “The strong credit ratings demonstrate Wall Street’s confidence in the city and its financial management.”
Lenora Reid, Acting Chief Administrative Officer, added, “Selling these bonds at remarkably low rates really helps position the city well for our capital spending and will benefit our citizens for many years to come.”
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