Diamond District bonds help Richmond achieve first AAA credit rating from Fitch

City administrators, financial advisers and councilmembers joined Mayor Levar Stoney for Thursday’s announcement. (Jonathan Spiers photos)

Changing its approach to financing the Diamond District has helped the City of Richmond achieve its first AAA credit rating, the highest possible, from one of the big three U.S. bond rating agencies.

City officials on Thursday celebrated the upgrade from Fitch Ratings with a news conference and reception in the observation deck atop City Hall.

The upgrade from the city’s previous AA+ rating was announced Wednesday by Fitch, which increased Richmond’s issuer default rating and outstanding general obligation to AAA (vocalized as “Triple A”) as a result of it assigning AAA ratings to two bond series recently issued by the city, including $130 million in general obligation (GO) bonds to finance the new Diamond District ballpark.

The New York-based agency also put a AAA rating on a $121 million GO bond issued to refinance a portion of the city’s unfunded actuarial liability to the Richmond Retirement System for city employees.

Fitch said in its announcement that the upgrades reflect the implementation of new rating criteria for local governments. It noted that Richmond’s credit quality rating relative to Fitch’s rating portfolio for local governments is at the lower end of the range for its AAA rating.

Favorable credit ratings allow the city to borrow money at lower interest rates and spend less on borrowing costs, saving taxpayer dollars that can then be put toward city services and other uses.

Richmond’s credit ratings with the other big agencies, Standard & Poor’s Global Ratings and Moody’s Investor Service, remain AA+ and Aa1, respectively. A “Triple AAA” from all three agencies is the highest possible endorsement.

At Thursday’s event, officials celebrated the AAA from Fitch, which Mayor Levar Stoney said is the first in Richmond’s history, while also committing to achieving a Triple AAA, the rating level shared by the neighboring counties of Chesterfield, Hanover and Henrico.

“Make no mistake, we cannot stop here. The work continues,” said Sabrina Joy-Hogg, Richmond’s deputy chief administrative officer for finance and administration. “We need to be a team for Triple A rating, and we need to continue to reach the same status with the other two agencies as well.”

Dozens of attendees gathered in the City Hall observation deck for Thursday’s news conference and reception.

Stoney described Fitch’s rating as putting Richmond “among an elite class of localities” in Virginia and across the country “that have proven financial responsibility at the highest level.” He said the rating puts Richmond in “the ranks of Triple A” with Chesterfield, Hanover and Henrico, “packing an unbelievable punch for the metro Richmond region.”

Stoney noted city efforts over his eight years as mayor to improve the city’s finances, including increasing the city’s reserves by $170 million to make what he called the largest reserve balance in Richmond’s history.

“With roughly seven months remaining on my term, I can confidently say we will be leaving Richmond in a robust financial position,” Stoney said.

Joy-Hogg said the reserve balance was achieved through a policy adopted in 2017 that dedicates 50 percent of surplus revenue at the end of each fiscal year to the city’s reserves.

“This policy, along with many other financial decisions the council has made, has led us to this point,” Joy-Hogg said. “We did not get here overnight. This is years in the making.”

Stoney said the AAA rating also “further underscores the positives” of the Diamond District project and validates the change in the financing approach to the project that City Council approved earlier this month. The new funding approach involves the city issuing its own bonds rather than using a community development authority and collateral from developer Diamond District Partners.

While the change puts the city on the hook to repay the bonds should the stadium not be built or the larger development fail, the move is projected to save the city $215 million in debt costs over the 30-year length of the loans because of a lower municipal interest rate based on the city’s credit rating. With Fitch’s AAA rating, that interest rate could be even lower.

The $170 million in bonds consist of the $130 million in GO bonds to finance the ballpark, and $40 million in lease revenue bonds for infrastructure improvements for the development’s first phase. The financing plan was recommended by Davenport & Co., the city’s financial adviser.

Stoney acknowledged Davenport’s David Rose and Roland Kooch along with city administrators he credited with achieving the rating upgrade: Chief Administrative Officer Lincoln Saunders, Joy-Hogg, Finance Director Sheila White and budget director Meghan Brown. Stoney also acknowledged his predecessors and previous city administrations for working to get the city to this stage.

Joining Stoney were council President Kristen Nye, members Nicole Jones, Katherine Jordan and Ellen Robertson, and former President Michael Jones, now a state delegate. Nye likewise credited the efforts of city employees and officials past and present.

“We’ve really turned around the trajectory of our financial picture in Richmond,” Nye said. “I want to thank not only everybody in this room, everybody standing up here, but also people who’ve been on council, people who have worked in the city who are no longer here but have really helped us move in that direction.”

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