Municipal Bonds This Week (12/20) - Upgrades and Downgrades


December 19, 2014

By: Mike Deane

Markets were up again this week--the last full trading week of 2014--as a fall in oil prices and the crumbling ruble were offset by the Federal Reserve's most recent comments on raising interest rates. After crude oil prices fell on Monday, dragging down the market with them, they were up slightly on Friday morning. Tuesday morning saw news that Russia's ruble collapsed after the country's interest rate hike failed to stabilize the country's currency, which led to markets opening lower. Things improved on Wednesday, as the markets saw 2014's best trading day, due to the Fed's dovish comments regarding the U.S. interest rate. The Federal Reserve said that it would be "patient in beginning to normalize the stance of monetary policy," which equates to interest rates remaining low for the foreseeable future. Initial jobless claims were also positive this week, coming in at 289,000 compared to the expected 295,000. Yields on 10-year Treasuries were also up this week, having started off Monday at 2.12 and closed out Thursday at 2.22. Below, we look at all of Moody's municipal bond upgrades and downgrades from the past week.

Upgrades

  • Texas Transportation Commission (TTC)-Central Texas Turnpike System: Moody's upgraded this system's outstanding first tier bonds to A3 from Baa1. The rating upgrade to A3 from Baa1 for the first tier bonds is due to stronger than forecasted growth in traffic and revenues in an economically vibrant and growing service area; strong financial and operational management; annually indexed toll rate increases; no additional planned debt and demonstrated TTC support for CTTS operations and maintenance (O&M) expenses as covenanted in the bond indenture.
  • Development Authority of Fairfax County, VA: Moody's upgraded to Aa1 from Aa2 the long-term rating, and affirmed the VMIG 1 short-term rating of Industrial Development Authority of Fairfax County, Virginia Health Care Revenue Bonds (Inova Health System Project) Series 2005 C-1 (the Bonds) in conjunction with the substitution of a letter of credit (LOC) provided by The Northern Trust Company (the Bank) for the liquidity facility provided by JPMorgan Chase Bank. The substitution takes effect on December 18, 2014.
  • District of Columbia: Moody's has affirmed the Aa3 ratings assigned to Johns Hopkins Health System's (JHHS) outstanding bonds, and the Aa3 ratings assigned to parity debt of the JHHS Obligated Group issued on behalf of Suburban Hospital, MD and Sibley Memorial Hospital, D.C. The rating outlook has been revised to positive from stable. Simultaneously, we are upgrading to Aa3, with a positive rating outlook, from A1 the rating assigned to All Children's Hospital, FL, reflecting the change in bondholder security in conjunction with All Children's entry into the Obligated Group of JHHS. These actions affects an aggregate $1.3 billion of rated debt outstanding.

Downgrades

  • The College of St. Rose, NY: Moody's downgraded this college to Baa3. The downgrade to Baa3 reflects the prolonged enrollment pressure for this tuition-dependent college which has translated into deepening operating deficits and deterioration of its debt service covenant for its letters of credit supporting its variable rate demand bonds (VRDBs). The downgrade also incorporates projections of operating deficits until FY 2017, which is expected to weaken the financial resource cushion.
  • Oklahoma Industries Authority: Moody's downgraded this authority to A1 from A2. The downgrade stems from the Oklahoma Medical Research Foundation's (OMRF) operating revenue softness in the face of increased debt and expenses following its campus expansion. While the foundation did achieve some growth in federal grants in fiscal year 2014, the pace of growth has not been as great as anticipated at the time of the expansion plans. Ongoing competition for sponsored research awards will likely weigh on revenue growth and operating performance over the next few years despite various measures to boost the foundation's productivity.
  • Village of Rosemont, IL: Moody's downgraded this village to A3 from A2. The A3 rating is based on the village's important role in the Chicago (Baa1 negative) regional economy. The village is located adjacent to the Chicago (City of) IL O'Hare Airport Ent. (A2 stable), and the village generates significant sales tax revenue from its large hospitality, retail, and service sectors. The A3 rating also reflects an extremely high debt burden; continued declines in tax base values experienced over the last five years; and exposure to the risks associated with numerous enterprises that are non-essential to municipal operations. The rating also incorporates the village's General Fund reserves that, while improved, remain insubstantial relative to the village's outsized long-term obligations.
  • City of Galena Park, TX: Moody's downgraded this city to A3 from A2. The downgrade primarily reflects reduced financial flexibility from ongoing General Fund support of the Water & Sewer Enterprise despite codified annual rate increases and Moody's belief that the receivable due to the General Fund from the Enterprise is currently uncollectible and further growth of this receivable will exert operating pressures on the city's General Fund. The rating further incorporates the city's limited and highly concentrated tax base and weak socio-economic profile.
  • Michigan State Building Authority: Moody's downgraded to A2 the long-term letter of credit (LOC) backed rating of the Michigan State Building Authority 2007 Multi Modal Revenue Bonds, Series I (the Bonds) in conjunction with the substitution of the existing letter of credit (LOC) provided by JPMorgan Chase Bank, N.A. with a substitute LOC provided by Citibank, N.A. (the Bank) effective December 17, 2014. The VMIG 1 rating is affirmed.
  • City of Geneva, NY: Moody's downgraded this city to A2 from A1. The A2 rating incorporates the city's modestly growing tax base, below average resident wealth levels, the institutional presence of the New York State Agricultural Experiment Station and Hobart and William Smith Colleges, narrow reserves due to several years of fund balance draws, aggressive forecasting of revenues and expenditures, and above average debt and pension burdens.
  • Robbinsdale Independent School District 281, MN: Moody's downgraded this school district to Aa3 from Aa2. The Aa3 underlying rating primarily reflects the district's somewhat narrow reserve position, recently improved liquidity, and inconsistent operating performance. The Aa3 is also based on the district's large tax base that has experienced valuation declines, stabilizing enrollment trend, moderate debt burden and above average pension burden.
  • East Allegheny School District, PA: Moody's downgraded this school district to Baa3 from Baa1. The downgrade of the district's underlying rating to Baa3 reflects very narrow liquidity and a negative General Fund balance, which experienced a further decline in fiscal 2014; a weak tax base with low wealth levels; and an elevated debt burden with exposure to swaps. Future operating performance will likely be challenged given the expiration of one-time revenues used to support budgets in recent years and continued growth in pension and charter school tuition costs. The ability to achieve and sustain higher levels of liquidity and reserves will continue to be a key factor for the rating.
  • Multnomah and Clackamas Counties School District No. 28JT, OR: Moody's downgraded this school district to A1. The downgrade reflects significant narrowing of reserves in recent years that leaves the district with limited operating flexibility. The district will be challenged to rebuild reserves in the medium-term given increasing staff related costs and a high level of fixed expenditures exacerbated by high pension contribution rates. The rating also incorporates the district's modestly-sized tax base adjacent to the City of Portland (Aaa stable), below average wealth levels, adequate liquidity levels and manageable debt profile expected over the medium-term.

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