After both major bond rating agencies reaffirmed the City of Alexandria’s top bond ratings, the City earned favorably low interest rates on the competitive sale of new general obligation bonds.
On July 25, the City issued $94.9 million in tax-exempt bonds, which will be used for schools, parks, public buildings, Metro, and other transportation improvements and infrastructure. The bonds, which will be repaid over 20 years, sold at a true interest cost of 2.5% to Bank of America Merrill Lynch. “True interest cost” represents the total cost of the debt, and includes interest payments, fees, and other components. The City received nine bids from various banks and financial groups.
At the same time, the City also sold $4.4 million of taxable general obligation bonds to Wells Fargo Bank, National Association, at a true interest cost of 3.08%. The taxable bonds will be used for affordable housing.
“Our receipt of nine very competitive bids reflects the good work of Finance Director Kendel Taylor and Alexandria Economic Development Partnership President and CEO Stephanie Landrum in effectively educating Wall Street about the City’s strong economic condition and sound financial management,” said City Manager Mark B. Jinks.
The low interest rates are the result of the City’s “AAA” and “Aaa” credit ratings from S&P Global Rating Services and Moody’s Investors Service, respectively, which were reaffirmed earlier in July. The City has maintained these top grades from both major bond rating agencies since 1992. The higher the rating, the lower the interest rate required by bond investors. The City’s highest bond ratings and low interest rates result in very low borrowing costs for Alexandria’s taxpayers to fund capital projects and will save taxpayers millions of dollars over the life of these bonds.
When interest rates are low, investors often offer a premium above the face value of a bond, in the hope they can sell at higher rates in the future. In this case, the City will receive a $11.3 million premium so that $106.2 million in funding for capital projects will be available after issuing only $94.9 million in tax exempt bonds.