Suffolk plans $35M bond issue, utility debt refinancing
Suffolk is preparing to borrow almost $35 million for capital projects. The annual bill is expected to land between $2.7 million and $3 million and already included in the city’s adopted budget and accounts for the higher estimate as a conservative measure.
City finance officials are pursuing another deal, too: refinancing about $37.5 million in older water and sewer debt. The projected savings: at least $1.1 million.
The money would cover projects already built into the city’s fiscal year 2027 capital plan. Transportation represents for the largest share, at $12.96 million. Public safety follows at $9.43 million. Schools would receive $7.7 million, with $2.7 million for parks and recreation projects and $2.2 million for neighborhood initiatives.
The total bond issue is listed at $34.98 million.
Finance and Budget Director Stephanie Wells told City Council during a June 3 work session that the city was ready to move into the financing phase after approval of the capital improvements plan and fiscal year 2027 budget.
“We’ve completed the capital improvements plan, we’ve completed the budget for FY 27 and it’s been approved,” Wells said. “And so now we can provide a plan of finance for the debt issuance for the capital projects that we have planned for 27.”
Kyle Laux, with Davenport & Co., the city’s financial adviser, said the borrowing is part of Suffolk’s regular post-budget financing cycle. He said the city commonly enters the bond market each year to fund capital projects approved through the budget process.
The water and sewer refinancing would involve about $37.5 million in 2015 and 2016 Virginia Resources Authority bonds. Laux said current market conditions give the city a chance to replace higher-interest debt with lower-interest debt.
The projected savings would be at least $1.1 million, net of costs. The refinancing would move forward only if it meets the city’s minimum threshold of 3% net present value savings.
“This is all set up in such a way that the refinancing only moves forward if that minimum savings threshold is met,” Laux said. “If it’s not met, then the refinancing doesn’t move forward.”
The savings would reduce debt service tied to the water and sewer system. City officials said that lower debt cost would help relieve pressure on the overall water and sewer expenditure budget.
The refinancing would not extend the final maturity of the existing debt, city advisers said. David Rose, also with Davenport, compared the move to a homeowner refinancing a mortgage at a lower rate without adding years to the loan.
“We are not extending any of the final maturities,” Rose said.
The city’s authorizations for the new borrowing and the refinancing include safeguards if interest rates rise before the bonds are sold. For the general obligation bonds, the authorization is expected to set a maximum true interest cost, or average interest rate, typically up to 5.5%. For the utility refinancing, the deal would have to meet the required minimum savings before it could proceed.
