Council votes on new debt

Published 10:24 pm Friday, July 8, 2016

Suffolk City Council on Wednesday approved about $32.8 million in new debt to help construct two new schools and fund other general capital projects.

The council also approved seeking to refinance about $46.5 million in old debt, which could save about $4 million over the life of the loans.

Kyle Laux of Davenport & Company, the city’s financial advisors, said international events in recent weeks have brought interest rates to historical lows.

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“Interest rates are very, very low,” he said. “With the ‘Brexit’ vote a couple weeks ago, as much as we don’t necessarily think about that being a direct translation to what we do in Suffolk, it actually looks like it’s going to benefit us.”

He referred to the June 23 referendum vote in the United Kingdom intended to gauge support for leaving the European Union. A majority of British voters favored leaving in the non-binding referendum.

“Interest rates have come down significantly since that happened, and we started at a very low rate to begin with,” Laux said.

In addition to the new debt, Davenport has identified about $46.5 million worth of outstanding city debt that could be refinanced, saving about $4 million, Laux said.

Finance Director Tealen Hansen said the refinancing would not be extending the maturity date of the loans, merely saving money in the meantime.

Councilman Mike Duman questioned whether it would be feasible to borrow money needed in future years and invest it until it’s needed, since the interest rates on debt are so low.

“If the rates really are historical lows, I don’t know if it’s feasible in the municipal world to do something like that,” Duman said.

However, Laux said there could be some hurdles, including financial policies. Laux also said the interest rates would probably average out over time.

Laux said the city’s bonds likely will be sold and refinanced next week.

Laux said new debt for public utility improvements will be handled separately this year, perhaps as soon as next month.

The three credit rating agencies — Fitch, Moody’s and Standard and Poor’s — also this week affirmed the credit ratings they issued to the city last year.

Fitch and Standard and Poor’s have issued AAA ratings, the highest possible. Moody’s has issued an Aa1 rating, just one notch below its highest possible.

Fitch said its rating reflects “the city’s expanding economy and growth prospects, low long-term liability burden, strong financial management, healthy reserves and broad budgetary tools.”

Laux said the credit rating agencies weigh the city’s management heavily when considering ratings.

“Management’s a very big part on a percentage basis component of how they come up with the credit rating,” he said. “From a management standpoint, you’re doing the things you’re supposed to do.”