Municipal Bonds This Week (11/22) - Upgrades and Downgrades


November 21, 2014

By: Mike Deane

Markets were set to log in their fifth straight week of gains as of Friday morning, after news from overseas bolstered investor confidence. China announced that it would be cutting its interest rate for the first time in two years in order to stimulate its economy. In addition, the European Central Bank President Mario Draghi announced that the ECB will use whatever methods are necessary to prevent the eurozone from sliding into a deflation. The international stimulus news caused major indexes and oil prices to rise at Friday's market open. In addition to the international news, there were some positive earnings announcements this week, with Lowe's (LOW), Home Depot (HD), Target (TGT), and Foot Locker (FL) all beating analysts' estimates on higher revenues and earnings. The Gap (GPS) also beat earnings estimates, but the company posted flat sales, which caused the stock to decline. Housing starts this week missed expectations of 1.025 million, coming in at 1.009 million, while existing home sales beat the 5.15 million expectation, coming in at 5.26 million. In employment news, Initial Jobless Claims came in worse than the 284,000 expected at 291,000. The yield on 10-Year Treasuries was fairly stable this week, after starting out on Monday at 2.34, moving higher on Wednesday, and closing out Thursday right where it started. Below, we look at all of Moody's municipal bond upgrades and downgrades from the past week.

Upgrades

  • City of Rolling Meadows, IL: Moody's upgraded this city to Aa3 from A1. The upgrade to Aa3 is primarily due to the substantial increase in the city's reserve levels bolstered by its Home Rule designation. Also incorporated into the rating is the city's moderately-sized tax base in the Chicago (Baa1/negative) metro region, above average demographic profile, modest debt burden with rapid principal amortization, and elevated exposure to unfunded pension liabilities.
  • Mansfield Economic Development Corporation, TX: Moody's upgraded this development corporation to Aa2 from Aa3. The upgrade and distinction between the Aa2 and Aa3 ratings is reflective of the closed lien nature of the senior lien bonds, cash funded debt service reserve for the senior lien bonds, ample debt service coverage in excess of 18 times, as well as the nature of senior and junior pledges. The ratings also reflect strength in the local economy, the broad nature of the sales tax pledge, a stable growth trend of pledged revenues, and adequate legal provisions for the bonds.
  • Katy Independent School District, TX: Moody's upgraded this school district to Aa1 from Aa2. The upgrade to Aa1 reflects the district's sizeable and growing tax base, trend of surplus financial operations and maintenance of healthy reserve levels, and strong socioeconomic profile. The rating also incorporates the district's high, but manageable, debt burden and additional borrowing needs to accommodate growing enrollment.
  • Mississippi Development Bank: Moody's upgraded the short-term ratings of: (i) American Public Energy Agency Gas Supply Variable Rate Revenue Bonds, Series 2005A to VMIG 2 from VMIG 3; (ii) Mississippi Development Bank Variable Rate Special Obligation Bonds (Municipal Gas Authority of Mississippi Natural Gas Supply Project) Series 2005 to VMIG 2 from VMIG 3 and (iii) Public Energy Authority of Kentucky Gas Supply Variable Rate Revenue Bonds, Series 2006A to VMIG 3 from S.G.
  • Southern Kern Unified School District, CA: Moody's upgraded this school district to A1 from A2. The upgrade to A1 (NOO) from A2 (NOO) reflects the district's improved financial position, its manageable debt profile, and elevated pension burden. The rating also conservatively accounts for the district's large and sudden growth in assessed value (AV), driven by multiple renewable energy projects having become operational in recent years.
  • Jim Thorpe Area School District, PA: Moody's upgraded this school district to A1 from A2. The upgrade to A1 reflects the significantly improved financial position due to three audited surpluses and an additional surplus anticipated in 2014. The A1 rating also reflects the district's moderately-sized tax base, above average debt burden and low pension burden.
  • Portland Housing Authority, ME: Moody's upgraded this housing authority to A1 from Ba2. The upgrade is a result of certain deposits made by the Borrower and Trustee, which corrects administrative errors that had previously weakened the program's financial performance. With the deposit of additional funds and revised information that administrative expenses are paid outside of the trust indenture, Moody's projects satisfactory financial performance to pay debt service on the bonds.
  • Glencoe Park District, IL: Moody's upgraded this district to Aa1 from Aa2. The Aa1 reflects the district's improved operating reserve position, moderately sized tax base near Chicago (Baa1 Negative), affluent resident profile and low debt burden.

Downgrades

  • City of Glendale, CA: Moody's downgraded this city to A1 from Aa3. The downgrade to A1 from Aa3 reflects the system's slower than expected return to positive liquidity. The A1 rating takes into account the substantial size and strong economic diversity of the service area, as well as residents' average socioeconomic profile. The rating also factors in the water system's strong operations. While the water system's supply has been adversely impacted by the current drought, the system's primary supply sources remain strong.
  • California Housing Finance Agency: Moody's downgraded to Aa1 from Aaa the long-term rating, and affirmed the VMIG 1 short-term rating of California Housing Finance Agency Multifamily Housing Revenue Bonds 2001 Series D & E and 2008 Series A, B & C (collectively the Bonds) in conjunction with the substitution of the existing credit and liquidity facilities (TCLF) provided severally by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation with substitute letters of credit provided by JPMorgan Chase Bank, National Association (the Bank).

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