Virginia Beach Refinancing Saves Taxpayers $9.9 Million over 16 Years

October 16, 2020

The City of Virginia Beach has saved taxpayers $9.9 million by refinancing $60.1 million in outstanding Series 2010A-2 (Build America Bonds), 2010B and 2010C Water and Sewer System Revenue Bonds – loans that funded water and sewer system rehabilitation, roadway coordination and neighborhood projects. The City's strong credit ratings of AAA, AAA and Aa1 on its Water and Sewer system made the savings possible. On Sept. 15, 2020, City Council approved a Bond Resolution authorizing the distribution of the Preliminary Official Statement in connection with the issuance of Water and Sewer System Revenue Bonds, Series 2020A and 2020B in the maximum amount of $111 million, comprised of up to $50 million for new money and $61 million for refunding. On Oct. 14, the City sold a total of $96.7 million comprised of $45.6 million in new money and $51.1 million in refunding Water and Sewer System Revenue Bonds. The refunding resulted in present value debt service savings of $9.9 million over the remaining 16-year term of the refunded bonds, or 16.5% of the refunded bonds.Six electronic bids were received from various investment banking, securities brokerage and financial services firms on the Water and Sewer System Revenue and Refunding Revenue Bonds. The bonds were awarded to Raymond James & Associates, Inc. at a true interest cost of 1.600896%."Given favorable market conditions and the City's water and sewer system's strong credit ratings of AAA (Fitch), Aa1 (Moody's) and AAA (S&P), the City sold bonds at the lowest rate ever for City's Water and Sewer new money and refunding bonds," stated Virginia Beach Director of Finance Alice Kelly. "Maintaining strong credit ratings allows the City to receive the lowest rates, which in turn saves the taxpayers money."Three major rating agencies affirmed the City's AAA/Aa1/AAA existing rating on its outstanding Water and Sewer System debt and on the 2020A and 2020B Water and Sewer System bonds with stable outlooks, and were highly complementary of the Water and Sewer system's financial management strength:Moody's Investors Service – Aa1-stable: Moody's cites, "The rating reflects the utility's large service area and diverse customer base, healthy debt service coverage, strong liquidity levels, and a manageable debt burden. The rating also incorporates management's conservative budgeting practice and strong, long-range capital and financial planning."Fitch Ratings – AAA-stable: Fitch states, "The rating reflects the system's very low financial leverage with strong revenue defensibility, which is rooted in the system's very strong revenue-raising ability, supported by a broad, diverse and mostly residential base and very strong rate flexibility." Fitch notes the "very low operating cost burden of the system" and "very low and stable system net leverage over the five-year outlook reflecting a stable rate of capital expenditures and moderate level of additional borrowing."S&P Global Ratings – AAA stable: S&P states, "The water and sewer system has a long history of conservative management that has led to strong financial metrics, which generally exceed management projections." The "AAA" bond rating reflects the system's extremely strong enterprise risk and financial risk profiles including a largely residential and very diverse service area economy, low industry risk, strong market position with affordable rates, strong financial metrics including debt coverage, strong cash reserves, and strong debt and liability profile. "The stable outlook reflects strong financial performance, based on Virginia Beach's detailed management policies on liquidity and coverage, as well as its record of regular rate increases."# # #