Tom Butt
  E-Mail Forum – 2019  
  < RETURN  
  Richmond's Bond Issuer Credit Rating Bumped Three Notches
May 30, 2019

S&P boosted the  City’s issuer credit rating THREE NOTCHES to AA- for refinancing of lease revenue bonds, which will be rated A+, one notch below the issuer credit rating, and the Pension Obligation Bonds will be assigned a AA- rating.

We are still waiting for S&P’s Wastewater bonds rating.

This is great news because it will reduce interest rates and save the City money.

The City Council authorized refunding of the JPFA (Joint Powers Financing Authority) Lease Revenue Refunding Bonds (Civic Center Project), Series 2009, thereby reducing General Fund expenditures for debt service through Fiscal Year 2037-38. In connection with the issuance of the 2019B Bonds, the City also adopted a revised Debt Policy.

Refunding the Prior Bonds with the proceeds of the 2019B Bonds is expected to result in annual cash flow savings ranging from approximately $765,000 in Fiscal Year 2019-20 to approximately $1,440,000 in Fiscal Year 2037-38. The adoption of the Debt Policy is expected to result in minimizing borrowing costs, ensuring fiscal sustainability, and better managing the City’s debt portfolio.

In 2009, the JPFA issued $89,795,000 of Lease Revenue Refunding Bonds (Civic Center Project), Series 2009 (the “Prior Bonds). The Prior Bonds were issued to refund the then outstanding Series 2007 Bonds (the “Original Bonds”). The current balance of the Prior Bonds is $79,505,000. Based on historically low market interest rates, the City can refund the outstanding bonds for approximately $13.8 million in net present value savings, or approximately 17.4% of the outstanding principal amount of the Prior Bonds, which is well in excess of the City’s policy level of at least 3% in savings. Since lease payments that are the revenue source for the payment of the bonds are paid from the General Fund, all savings will accrue to the General Fund. Staff anticipates that the interest rate for the 2019B Bonds will be set during the week of June 24 and the refunding will be completed on during the week of July 8. Participants – 2019B Bonds.

The City solicited proposals from underwriting firms for various City financings through a request for proposals (“RFP”) process that began in 2018. Based on this RFP process the City selected Stifel, Nicolaus & Company, Inc. (Stifel) as senior manager and Siebert Cisneros Shank Co., L.L.C. (Siebert) as co-manager for the 2019B Bonds. Other financing team members include Public Resources Advisory Group as municipal advisor, Orrick, Herrington & Sutcliffe LLP as bond counsel, and Schiff Hardin LLP as disclosure council. Zions Bancorporation is acting as escrow agent in its capacity as trustee for the Prior Bonds. MUFG Union Bank, N.A. will serve as trustee for the 2019B Bonds. Debt Policy.

Municipal governments provide a wide range of services that have an impact on public safety and quality of life for community members. Prudent use of resources helps determine how effectively these services are provided on an ongoing basis. In addition to managing revenues and expenditures, it is also the municipal finance official's responsibility to focus on management practices that will enable the City to better control its financial resources on a continuing basis. The foundation of any well-managed debt program is a comprehensive debt policy. A debt policy sets forth the parameters for issuing debt and managing the debt portfolio, including post-issuance compliance. In the credit rating process, the rating agencies believe it is appropriate to place significant value on debt policies that have been adopted by cities.

The City's Debt Policy requires that annual commitments relating to General Fund debt not exceed 10% of annual General Fund revenues. The revisions to the city’s Debt Policy clarify the City’s permitted uses of long-term debt, emphasize that no City funds will be pledged for the payment of conduit debt and provide for minimum credit ratings for such conduit debt, and further clarify the relationship between debt issuance and affordability as it relates to long term budget sustainability, among other clarifying revisions.