Municipal Bonds This Week (6/21) - Upgrades and Downgrades


June 20, 2014

The S&P 500 hit a new high on Friday morning and was on its way to a six-day gain, ending out the week higher for four out of the past five weeks. The conflict in Iraq tempered investor sentiment and kept oil prices up this week, but the Fed's FOMC minutes release on Wednesday showed optimism and pushed markets higher. In macro new, Initial Jobless Claims came in slightly below expectations of 313,000 at 312,000, marking a decrease of 6,000 from last week. May housing stats were announced this week as well, and were somewhat disappointing, with building permits coming in lower than the 1,050,000 expectation at 991,000, and housing starts coming in at 1,001,000 versus the expectation of 1,030,000. In the bond markets, 10-Year Treasury yields held fairly stable, starting the week at 2.61 and closing out Thursday at 2.64. Below, we look at all of Moody's municipal bond upgrades and downgrades from the past week.

Upgrades

  • County of St. Clair, IL: Moody's upgraded this county to Aa3 from A2. The ratings are based upon: (i) the direct-pay letter of credit provided by the Bank; (ii) the structure and legal protections of the transaction which provide for timely payment of debt service and purchase price to bondholders; and, (iii) Moody's evaluation of the credit quality of the Bank issuing the letter of credit.
  • York County, SC: Moody's upgraded this county to Aa1 from Aa2. The upgrade to Aa1 reflects the strong financial position of the county, represented by high reserve levels, solid management with conservative budgeting practices, and ongoing tax base growth that benefits from proximity to the City of Charlotte, NC (Aaa/stable).
  • Iona College, NY: Moody's upgraded this college to Baa2 from Baa3. The upgrade to Baa2 rating is supported by a combination of consistently positive cash flows providing solid debt service coverage, and material growth in flexible reserves fueled by retained surpluses. The upgrade also incorporates management's focus on repairing the college's reputation, improving student demand, and utilizing financial best practices.
  • Harris County Department of Education, TX: Moody's upgraded this department of education to Aaa from Aa1. The Aaa rating reflects the Department's margin under the tax capacity, as well as the large and diverse economy that continues to drive taxable value growth. The rating also reflects strong operating performance and large financial reserves. Also considered is the department's dependence on interlocal agreements with local-area school districts, and the modest debt profile.
  • Buffalo City Center School District, NY: Moody's upgraded to Aa2 from Aa3 the rating for nine separate Board of Cooperative Educational Service (BOCES) obligors issued through the Dormitory Authority of the State of New York (DASNY) that benefit from the state aid intercept program. The Aa2 ratings on the BOCES obligors and the DASNY Master BOCES Intercept Program reflects the direct payment of state BOCES aid by the state comptroller to the bond trustee. The rating on the BOCES obligors also reflects the strong coverage by the aid of maximum annual debt service.
  • New York State: Moody's upgraded New York State's rating to Aa1 from Aa2. The Aa1 rating reflects New York's sustained improvements in fiscal governance, the strength of the recent economic recovery, a strong financial position reflected in improved reserves, and reduced spending growth in line with growth in the state's economic capacity. The rating also recognizes New York's expensive business environment, reliance on financial services and other NYC-based economic drivers, high state debt burden offset by below-average net pension liabilities, and a history of structural budget gaps requiring reliance on non-recurring resources to achieve budget balance.

Downgrades

  • School District of Beloit, WI: Moody's downgraded this school district to A1 from Aa3. The downgrade to A1 reflects the district's high debt burden that is not expected to moderate significantly in the medium term due to continued tax base declines as well as an unbudgeted draw on reserves in fiscal 2013. The A1 rating also reflects the district's moderately sized, concentrated, and declining tax base with a weak demographic profile, satisfactory financial profile with strong management, and a manageable pension and OPEB burden.
  • Manatee County School Board, FL: Moody's downgraded this school board to Baa2 from Baa1. The Baa2 rating on the COPs reflects the board's limited finances, characterized by declining liquidity and overdrawn General Fund reserves that have not met state requirements in four consecutive years, with a fifth year projected. The rating also incorporates the large tax base with below average resident wealth levels, average debt burden, and manageable adjusted net pension liability.
  • Good Shepherd Medical Center, TX: Moody's downgraded this medical center to Ba3 from Baa3. The rating downgrade reflects the severity of the liquidity risks GSHS faces related to the necessity of forbearance agreements to avoid debt acceleration; a material and rapid decline in financial performance through year-to-date fiscal year (FY) 2014, resulting in significant miss to budget; sizeable patient volume losses and related market share decline; and the expectation that the organization will not return to profitability until FY 2016.
  • Monongahela Valley Hospital, PA: Moody's downgraded this hospital to Baa2 from Baa1. The downgrade to Baa2 incorporates the multi-year trend of declining financial performance and operating losses in fiscal years 2012, 2013 and through nine months of FY 2014. Given the relatively small size of the organization, the current level of operating cash flow generation will limit MVHR's ability to maintain its good liquidity position and support its high level of variable rate debt.
  • City of Jacksonville, FL: Moody's downgraded this city to Aa2 from Aa1. The downgrade to Aa2 on Jacksonville's issuer and Aa3 on the special tax rating reflect the city's high fixed costs, which are elevated by weak pension funding levels. Despite a new pension reform plan that is in the final stages of ratification, pension payments will continue to constrict the city's financial operations.
  • City of Fulton, NY: Moody's downgraded this city to Baa1 from A2. The downgrade to Baa1 reflects the city's deteriorating financial position due to the inability to generate revenues sufficient to cover growing fixed costs; a limited and declining tax base due to the loss of two top taxpayers; an above average debt burden, and extended long term liabilities through pension amortization.
  • City of Oshkosh, WI: Moody's downgraded this city's senior lien storm water revenue debt to A1 from Aa3. The A1 rating is based on the system's satisfactory senior lien debt service coverage with overall coverage that fell below sum sufficient in fiscals 2011 and 2012; currently healthy, though declining reserves; active history of rate increases; satisfactory legal provisions; and a substantially elevated debt ratio with additional borrowing planned.
  • Gatesville, TX: Moody's downgraded this city to A2. The A2 rating reflects the city's stable local economy, supported by the Texas Department of Criminal Justice prison system and Fort Hood military installation, an affordable debt profile that includes a significant amount of self-supporting debt, narrow liquidity, and declining reserves.

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