Middleburg, Purcellville Refinance Debt in Low-Interest Market

The COVID-19 pandemic has brought devastating health and economic impacts worldwide but it has also benefitted borrowers in the financial market, including the towns of Middleburg and Purcellville.

In early March, the Federal Reserve cut interest rates by a half percentage point, lowering them to a range of 1 to 1.25 percent. A few weeks later, the Fed cut rates again to a range of 0 to 0.25 percent. The last time rates dropped that low was December 2008. They remained at that level for seven years.

The Middleburg Town Council on March 12 authorized the town staff to obtain a $2.5 million line of credit from BB&T Bank to finance various utility projects. That comes with a 1.62-percent five-year interest rate on the $2.2 million tax-exempt portion, which is 0.29-percent lower than what the bank originally proposed, and a 2.04-percent five-year interest rate on the $300,000 taxable portion, which is 0.37-percent lower than proposed.

The town will use the credit to pay for utility projects including final work on the west end pump station, a $350,000 clear well and $550,000 to repaint the Marshall Street water tank. The town will also reimburse itself for the cash it paid to complete other utility projects.

On March 26, the council also voted to refinance three utility fund bonds. The town will refinance the remainder of a $2.14 million bond through a $1.5 million loan from Key Bank. It will pay that back with an annual interest rate of 1.8 percent over the next decade, which is about 3 percent lower than what the town is paying today.

The town will also refinance the remainder of a $1.2 million bond and a $1.5 million bond through a $2.4 million loan from BB&T Bank, which it will pay back with an annual interest rate of 1.79 percent throughout the next 14 years—about 0.4 to 0.9 percent less than what it’s currently paying on the debt.

Town Administrator Danny Davis said refinancing would save the town about $388,000 and eliminate five years of debt service payments.

“That’s a huge savings for us,” he said. “It’s great news for the town.”

The Purcellville Town Council on March 24 voted to refinance $14.8 million of debt. According to a staff report, the town will refinance $4.4 million left to pay on a $5.87 million bond through a $4.7 million loan from Key Bank. The town will pay that back throughout the next 13 years with an annual interest rate of 1.5 percent, which is 1.25percent lower than the existing interest rate.

The town will also refinance $5 million left to pay on a $27.16 million bond and $5.4 million left to pay on a $6.54 million bond through a $13.3 million loan from Key Bank. The town will pay that back throughout the next 14 years with an annual interest rate of 2 percent, which is about 2.8 to 2.6 percent lower than the existing rates.

Based on Key Bank’s proposal, the town should save $2 million by refinancing—more than half of which is accounted for by savings in the sewer fund. According to a presentation by Davenport & Company, the town’s financial consultant, one of the goals for refinancing is to create upfront cashflow relief in the sewer fund for Fiscal Years 2021-2025. The town’s sewer fund shrunk by 16 percent in Fiscal Year 2020 over the previous fiscal year and contains about $30 million of outstanding debt.

The county’s four other western Loudoun towns are not looking to take advantage of the low-interest-rate market.

The Town of Hamilton is not looking to refinance any of its debt. According to Treasurer Tina Staples, the town has one outstanding bond that is two years away from maturity.

While the Town of Hillsboro has no debt, Mayor Roger Vance said today’s financial climate will be beneficial to the town as it looks to finance its new wastewater treatment plant.

Lovettsville Town Manager Rob Ritter said the town does not intend to refinance, since VML/VACo Finance indicated that the town would be penalized if it did so at this time.

Round Hill is not looking to refinance any of its debt because, according to Town Administrator Melissa Hynes, the town’s only major debt is a 20-year loan it’s using to finance the wastewater treatment plant that the town has paid off half way. Hynes said town leaders are pleased with the interest rate on that loan.

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