Municipal Bonds This Week (3/15) - Upgrades and Downgrades


March 14, 2014

By: Mike Deane

Investors faced a tumultuous week in the markets, with stocks tumbling on Thursday amid the growing tension in Russia and Ukraine, and due to China's economic slowdown. During Thursday's trading, the S&P 500 fell below its 10-day and 14-day moving averages, and dipped below 1,850. The markets opened flat in Friday morning trading. In macro news, initial jobless claims for the week came in at 315,000, below the expected 330,000. The Price Purchase Index for final demand unexpectedly fell 0.1% for February; analysts were expecting it to rise by 0.2%. March's U of M Confidence Index was also below expectations, coming in at 79.9 versus the view of 82. Turning to the bond market, 10-Year Treasury yields were fairly stable throughout the week, before falling to 2.66 on Thursday. Below, we look at Moody's many municipal bond upgrades and downgrades from the past week.

Upgrades

  • Flatonia Independent School District, TX: Moody's upgraded this school district to A1 from A2. The upgrade to A1 reflects the district's favorable reserve position after positive multi-year operating trends and improved socioeconomic profile. The ratings also incorporates the district's modestly concentrated tax base and manageable debt burden.
  • Village of Clayton, NY: Moody's upgraded this village to A3 from Baa1. The A3 rating reflects the village's modestly sized tax base, average socio-demographic profile, adequate reserve levels, and high debt burden mitigated by its lack of future borrowing plans.
  • Pike County, AL: Moody's upgraded this county to A2 from A3. The upgrade to A2 incorporates the county's improved financial profile; stable economy with some taxpayer concentration; and low debt burden with above-average amortization of principal.
  • Stephens County, GA: Moody's upgraded this county to Aa3 from A1. The upgrade reflects the county's ample fund balance and cash position, which are bolstered by conservative budgeting practices and positive operating trends, and the low debt and pension burdens. The Aa3 rating also incorporates the county's modestly sized tax base with below average socioeconomic factors.
  • Caledonia Township, MI: Moody's upgraded this township to Aa3 from A1. The upgraded Aa3 rating reflects the township's very ample reserves with manageable draw downs expected. The rating also incorporates township's modest debt burden and absence of outstanding pension liabilities; moderately sized tax base; and average socio-economic profile.
  • Ashland City, TN: Moody's upgraded this city to Aa3 from A1. The upgrade to Aa3 reflects the town's solid financial position with strong reserve levels that have increased 30.4% over the last five years (2008-2013). The rating also reflects the town's limited tax base with average socioeconomic factors, high taxpayer concentration, and low level of debt that is almost entirely supported by enterprise revenues.
  • Wareham Fire District, MA: Moody's upgraded this fire district to Aa3 from A2. The upgrade to Aa3 from A2 reflects the district's stable financial position with increased reserve levels, a moderate tax base with average wealth levels and low debt burden. The rating also incorporates the district's self-supporting water operations.
  • City of Atlanta Airport, GA: Moody's upgraded the City of Atlanta's Airport General Revenue Bonds to Aa3 from A1. The upgrade to Aa3 for the senior lien bonds is based on the airport's financial and operational strengths, which are well above average even as the airport has recently completed major capital expansion projects. The rating is also supported by the strong, vibrant local economy that is expected to outpace growth in the broader US economy; the financial strengthening of the airport's two major carriers; and no additional debt planned for at least the next four years.
  • Frankfort Fire District, IL: Moody's upgraded this fire district to Aa2 from Aa3. The Aa2 rating reflects the district's strong full valuation per capita and median family income figures, healthy financial position, and minimal exposure to defined benefit pension liabilities. The rating further incorporates a sizeable full valuation located 30 miles south of the City of Chicago (Baa1 negative) and a modest direct debt burden.
  • Community College District 521 (Rend Lake), IL: Moody's upgraded this college district to Aa3 from A1. The Aa3 rating reflects the district's moderately sized and modestly growing tax base in southern Illinois(A3 negative); stable financial operations supported by healthy reserves; and low debt burden with a minimal pension liability.
  • Town of Stillwater, NY: Moody's upgraded this town to A1 from A2. The upgrade reflects the town's improved financial profile and positive multi-year financial trends. The town's low unfunded pension liability also contributed to the upgrade. Other key considerations include the town's limited tax base, average wealth levels and manageable debt burden.
  • City of Okoboji, IA: Moody's upgraded this city to A1 from A2. The A1 rating reflects the city's small tax base in northwestern Iowa (issuer rated Aaa stable), previously narrow financial operations experiencing recent improvement; above average financial flexibility, and average debt burden with a modestly-sized unfunded pension liability.

Downgrades

  • City of Trotwood, OH: Moody's downgraded this city to A2 from A1. The downgrade to A2 from A1 reflects the city's modestly sized tax base in the Dayton (general obligation Aa2/stable outlook) metropolitan area which is experiencing substantial tax base depreciation, below average income levels, narrow financial reserves, and an elevated debt burden with below average principal amortization.
  • Regional West Medical Center, NE: Moody's downgraded this medical center to Baa2. The rating downgrade to Baa2 reflects two years of weak financial performance, general inconsistency in operating performance over the last several years, and our view that margins will remain suppressed over the near term. Additionally, although balance sheet measures are adequate at the current rating level, capital spending has been light over the last several years and should capital spending increase, balance sheet measures could weaken.
  • Battle Creek School District, MI: Moody's downgraded this school district to A1 from Aa3. The downgrade to A1 reflects the district's ongoing structural operating imbalance which has resulted in six consecutive operating deficits. Also incorporated in the rating is the district's moderately-sized tax base in west-central Michigan (Aa2 positive); weak socioeconomic characteristics; declining enrollment; and above average debt burden with elevated exposure to an underfunded cost-sharing pension plan.
  • City of Adrian, MI: Moody's downgraded this city to Aa3 from Aa2. The Aa3 rating incorporates the city's modestly sized and recently depreciated tax base located in southern Michigan (Aa2 positive), moderate economic stability provided by the presence of two four-year colleges, ongoing maintenance of healthy financial reserves despite recent reductions, and moderate debt and unfunded pension burdens.
  • Lewiston-Porter Central School District, NY: Moody's downgraded this school district to A2 from A1. The downgrade to A2 reflects the district's deteriorating financial position with reserve levels falling considerably in fiscal 2011.
  • Springfield School District 186, IL: Moody's downgraded this school district's $1.2 million in QZAB General Obligation Debt Certificates, Series 2009D to A2 from A1.The A2 rating on the outstanding debt certificates reflects the lack of a dedicated levy to pay debt service and the district's narrowing reserve levels.
  • University of California, CA: Moody's downgraded this university to Aa2 from Aa1. The downgrade to Aa2 reflects the university's multiple years of operating deficits, rising fixed costs, and revenue constraints. The rating also incorporates the university's substantial and growing debt burden, increasing the importance of stronger cash flow to absorb rising debt service obligations. The university's ability to improve operations will be further limited by public policy and faculty and staff that is 40% unionized.
  • Park Creek Metropolitan District, CO: Moody's downgraded this district's senior lien limited property tax bonds to Ba2 from Baa2. The downgrade reflects a substantially weakened debt profile including sizable and growing exposure to subordinate debt payable to the district's master developer and its subsidiaries.
  • Onondaga County, NY: Moody's downgraded this county to Aa2 from Aa1. The downgrade to Aa2 reflects the county's well-managed financial operations with satisfactory reserve levels that are expected to remain stable in the near term, sizable and diverse economic base, and an above average but manageable debt position.
  • Palomar Health, CA: Moody's downgraded this health district's GO bonds to A2 from A1. The downgrade reflects the weakened financial position of the district as reflected in the downgrade of the hospital's revenue bonds to Ba1/negative from Baa3/negative.
  • Palomar Health, CA: Moody's downgraded this health district's revenue bonds to Ba1 from Baa3. The downgrade to Ba1 and the assignment of the negative outlook reflect poor liquidity, the triggering of an insurer covenant, and the failure of the organization to improve cash balances over the last 12 months.
  • City of Monessen, PA: Moody's downgraded this city to Baa2. The Baa2 rating reflects the city's strained financial position with extremely limited reserves, modestly-sized tax base located near Pittsburgh (rated A1 stable), and an above-average but manageable debt burden.
  • Dowling College, NY: Moody's downgraded this college to Ca from Caa1. The rating downgrade to Ca reflects the magnitude of Dowling's financial challenges as well as the higher probability of default and expectation of impairment in the event of default.
  • Otsego Public Schools, MI: Moody's downgraded this public school district to A3 from Aa3. The downgrade to A3 rating reflects the district's elevated debt burden and narrowing reserves and liquidity. The rating also incorporates a trend of stable enrollment and the district's stable and moderately sized tax base as well as the district's exposure to a considerably underfunded cost-sharing retirement plan.

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