Montgomery County’s recent bond rating upgrade and the current interest rate environment for municipal securities allowed the County to refinance $41.2 million in bonds, resulting in net budgetary savings of $12.4 million between fiscal years 2017 and 2029.
Late last month, Moody's Investors Service upgraded the County’s General Obligation bond rating to Aa1 from Aa2. This upgrade reflected the “growing local economy, bolstered by the presence of Virginia Tech; a decreased, though still above average, debt burden; and an increase in reserves and liquidity. The rating further incorporates the County's role as a regional economic hub, average socioeconomic profile, and average pension liability.”
Standard & Poor's Ratings Services also revised its outlook in December to positive from stable on the County’s affirmed AA general obligation debt rating. The revised outlook reflects the County’s “strong economy, with a local stabilizing institution” and “strong financial management policies and practices.” The agency also indicated it could raise the rating within a year if the County maintains its “very strong budgetary flexibility and liquidity while economic indicators continue to improve.”
The bond rating improvements followed a trip in early December to New York by County officials to present the County’s financial picture to bond rating agencies before refinancing the bonds.
On Jan. 13, the County received bids on approximately $33 million in bonds which were awarded to Bank of America. Bank of America provided the lowest true interest cost (2.14%) out of five strong, competitive bids. The Series 2016 Bonds were issued to refinance the County’s outstanding Series 2008 Bonds in order to generate debt service savings. The issuance did not include proceeds for any new projects and did not increase the repayment schedule on the debt. The Series 2008 Bonds had required the County to maintain approximately $5.5 million in cash in a debt service reserve; because the market no longer requires a reserve fund for this type of bond, the $5.5 million in reserves were used to further reduce the amount of the new bonds.
Net budgetary savings with the financing totaled $12.4 million. This refinancing also resulted in net present value savings to the County of 12.74% - more than four times the industry standard of 3%, which is used to gauge whether or not to move forward with a refinancing.
“This is wonderful news that will save the County with lower debt service payments over the life of the bonds,” said Board Chair Chris Tuck. “I am pleased that the bond rating agencies acknowledge the County’s healthy and stable financial position resulting from strong fiscal policies and conservative budget management.”