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Radio Rehoboth
WILMINGTON — Delaware continues to hold a perfect AAA bond rating in renewed reviews as it prepares for a $359 million general obligation bond sale in the coming days.
The Kroll Bond Rating Agency and the top three U.S. bond rating agencies, Fitch, Moody’s and S&P Global, all retained Delaware’s highest possible ratings, making the 24th consecutive year that it was able to receive unanimous confidence. Delaware has “exceptional financial resilience from strong management” from the financial cushion from saving policies, according to Fitch.
Delaware is preparing to issue $286.7 million in general obligation Series A bonds to fund capital projects and $68.5 million in Series B funds to refinance pre-existing debt at a lower rate. The bond sale is scheduled for May 15.
Bond ratings are important because higher grades translate into lower interest costs in repayment of the bonds. The agencies look at a variety of criteria, including a state’s economy, government’s financial performance and management, debt load, long-term costs and political structure. States that analysts believe could better weather recessions or economic downturns are in turn seen as safer risks and awarded higher ratings.
“Delaware’s financial condition has never been stronger,” Delaware Treasurer Colleen Davis said in a prepared statement. “The Delaware Treasury in collaboration with the Cash Management Policy Board continues to monitor strong liquidity and reserves. This lowers the State’s borrowing costs and increases interest income available for critical investments in schools, public safety, and our quality of life.”
In its evaluation, S&P Global Ratings credit analyst Geoff Buswick wrote that “Delaware’s demonstrated history of proactive fiscal management and well-embedded strong financial policies underpin the rating.”
Fitch also noted that Delaware’s revenues are expected to grow in the long term which should keep the state above inflation. Recent strong growth has allowed the state to fully fund two reserves to a combined 12% of revenues.
Among other highlights of the evaluations include its restriction to budget 98% of expected revenue, strong monitoring of revenues and operating expenditures to offset volatility, limits to tax-supported debt, using surplus funds for one-shot capital expenses and continued economic growth, among other things.
Both agencies noted that Delaware’s bond rating could be lowered if the budget or its reserves were challenged or liabilities for health care costs for retirees who are living longer, getting new treatments and seeking to restrict changes to the health plan. In particular, Fitch noted a sustained increase in that burden that comes to 20% of personal income.
Despite a higher interest rate this year, Delaware Secretary of Finance Rick Geisenberger said that the state was in a strong place as it enters the market.
“Bond buyers continue to show a strong appetite for investing in Delaware. Despite a significantly higher interest rate environment today than just a couple years ago, today’s bids were very competitive,” Geisenberger said in a prepared statement. “The State’s total interest costs on its new bonds is 3.51%. That’s an increase of about 40 basis points versus last year’s bonds, consistent with Federal Reserve Policy moves over the last year. State taxpayers also realized $6.1 million in savings by refinancing $77 million of existing debt.”
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