Chattanooga will head to the bond market this month to issue $58 million in debt at what city officials hope will be one of the most attractive borrowing rates in years.
The city is taking advantage of lower interest rates for tax-exempt bonds and its favorable bond rating to refund $19 million of existing debt originally issued in 2009 and to raise another $37 million for capital improvements planned over the next couple of years.
The new 15-year bond issues, the biggest in two years for Chattanooga, should replace the existing debt priced in the past from 3 percent to 4 percent with new debt carrying borrowing rates significantly lower.
Daisy Madison, Chief Financial Officer"Hopefully, we can get under 2 percent but it certainly should be under 3 percent," City Finance Director Daisy Madison said.
Chattanooga plans to price the bonds Oct. 20. Fitch Ratings this week assigned a favorable AA+ rating to the issue, the second highest bond rating possible.
Fitch cited Chattanooga's "strong employment and population growth, increased construction and a resurgence of the downtown" and said the city has sound financial management with a moderate debt burden.
"Historically conservative budgeting, expenditure flexibility and a willingness to raise revenues have enabled the city to maintain sound reserves," Fitch analyst Patricia McGuigan said.
The city's overall debt averages $2,827 per resident and 3.1 percent of the Chattanooga's overall market value, according to Fitch.
Chattanooga has $201.7 million of outstanding general obligation bonds and another $105.6 million of outstanding industrial development bonds issued by the Chattanooga Industrial Development Board, Fitch said.
Employment growth in Chattanooga has accelerated, outpacing the national employment growth rate even though the most recent jobless rate in the city of 7.1 percent was well above the U.S. rate of 5.5 percent.
"Wealth levels are generally below the state and national averages, although the city's cost of living [90.1 percent of the national average in 2013, per citydata.com] somewhat compensates," McGuigan said. "Recent wage data shows promising gains for the city."
The new year will fund the city's capital improvements approved by the city of Chattanooga, which includes more than $12 million for road paving and transportation improvements. $6.7 million for the annual share of economic development projects, nearly $5 million for public works projects and $4 million for police technology upgrades and equipment, among other projects. The city last year contributed more than $26 million of capital funds for the planned expansion of the Volkswagen assembly plant.
Despite VW's diesel deception scandal and the potential of lower Volkswagen sales and production, Fitch maintained its favorable rating for Chattanooga.
"The city has a strong financial base and the rating agencies have said they are impressed with the way the city manages its finances," Madison said. "The bond holders should be confident that these bonds will be repaid."
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.