Wall Street has, for the fourth year in a row, re-affirmed Virginia Beach’s standing as the best-managed city in Hampton Roads. All three major ratings agencies have awarded Virginia Beach the highest possible bond rating of Triple-A.
Virginia Beach is the only city in Hampton Roads with Triple-A bond ratings from all three agencies – Fitch, Moody’s and Standard & Poor’s.
As a result, on Wednesday, April 3, the city raised $22.9 million by selling general obligation bonds for the new Kellam High School at an extremely low interest rate of just 2.58 percent. This is the lowest interest rate the city has ever received on a large new money general obligation bond issue, beating the 2010 rate of 2.97 percent and the 2012 rate of 2.85 percent, which were all-time lows.
The city also refinanced $33.8 million in general obligation public improvement bonds, generating a debt service savings of $3.9 million over 14 years. The interest rate on these bonds was 2.14 percent.
“Virginia Beach is seen as a well-managed city, which is reflected in the way the investor community received these bonds,” said Finance Director Patricia A. Phillips. “The schools as well as the city benefit from these all-time record low interest rates.”
Bidding for Virginia Beach’s bonds was very competitive; six bids were received. The winning bidder was Citigroup Global Markets with an overall interest rate of 2.362 percent for both series of bonds. The second-place bid was from Robert W. Baird & Co., Inc., with a true interest cost of 2.367 percent.
Janet Lee of Public Resources Advisory Group, the city’s financial advisor, noted that the very narrow difference between the winning bid provided by Citigroup and the cover bid provided by Baird reflects the strong demand for the city’s bonds. The overall low true interest cost and the substantial level of savings for the refunding are the results of the city’s highest possible credit ratings from all three major rating agencies, as well as favorable conditions in the broader municipal bond market, including historically low interest rates and a manageable supply of tax-exempt bonds.
All three ratings agencies praised Virginia Beach’s conservative fiscal management.
• Fitch praised Virginia Beach’s “exceptional financial management” demonstrated by “conservative budgeting practices,” maintenance of “healthy reserves”, and “detailed financial monitoring” which underpin the city’s financial flexibility.
“Virginia Beach’s economy “continues to diversify, spurring continued positive performance in economically dependent revenues,” Fitch wrote.
• Standard & Poor’s praised Virginia Beach’s “strong local economy,” its “comprehensive economic development strategy,” its “professional and seasoned management team” and its “low-to-moderate debt.”
“Virginia Beach's finances remain what we consider strong, benefiting from, in our view, conservative budgeting practices and well- adhered-to policies,” Standard & Poor’s wrote.
• Moody’s praised Virginia Beach’s “large and diverse tax base stabilized by the presence of military bases,” along with the city’s “strong and carefully managed financial position” and “comprehensive financial policies and conservative budgeting approach.”
“Virginia Beach's debt burden will remain affordable, even with its relatively large capital plan, due to the city's active debt management policies,” Moody’s wrote.
The bonds sold last week are part of the financing plan for the new Kellam High School, currently under construction.
To read the ratings reports from all three Wall Street agencies, visit www.VBgov.com/finance.
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