Municipal Bonds This Week (7/5) - Upgrades and Downgrades


July 03, 2014

By: Mike Deane

In this shortened week, the markets' momentum did not let up, as positive employment data continued to bolster investor confidence. The Dow moved above 17,000 on Thursday morning, after positive Nonfarm Payroll data for June was released. The U.S. economy added 288,000 jobs in June, which was much higher than the consensus estimate of 215,000. The unemployment rate now sits at 6.1%, which is the lowest level since September of 2008. The ADP National Employment Report came out on Wednesday, with similarly rosy employment info, announcing that the private sector had added 281,000 jobs in June, versus the estimate of 205,000. One minor bit of negative jobs news came on Thursday morning, as Initial Jobless Claims came in slightly above estimates of 313,000 at 315,000. In the bond markets, 10-Year Treasury yields were up, starting the week off at 2.53 and ending off Wednesday at 2.64. In major municipal bond news, Puerto Rico's General Obligation bonds were downgraded to B2 from Ba2 by Moody's. Find a complete list of Moody's municipal bond upgrades and downgrades below.

Upgrades

  • Saint Louis University, MO: Moody's upgraded this university's long-term rating to Aa1 from A1. Moody's has evaluated the Bonds based on a joint default analysis (JDA) which reflects Moody's approach to rating jointly supported transactions.
  • Catholic Theological Union: Moody's upgraded this union to Aa3/VMIG 1 from A3/VMIG 2. These actions are in conjunction with the substitution of the letter of credit supporting the bonds provided by RBS Citizens, N.A. with a letter of credit to be provided by U.S. Bank National Association (the Bank).
  • Southern California Public Power Authority: Moody's upgraded this power authority's Milford Wind Project Revenue Bonds to Aa3 from A1. The major factors incorporated in the Aa3 rating include the Aa3 credit quality of the major project participant, Los Angeles Department of Water and Power (LADWP) (92.5% of total project) and the strong take-or-pay contractual obligations that the participants must pay all costs even if the project does not operate or is inoperable.
  • Township of West Bradford, PA: Moody's upgraded this township to Aa2 from Aa3. The upgrade to Aa2 from Aa3 incorporates the township's ongoing trend of operating surpluses, which has led to well above-average cash reserves. The rating recognizes the township's moderately sized tax base with strong socio-economic characteristics, modest debt burden, and minimal pension liabilities.

Downgrades

  • Utica City School District, NY: Moody's downgraded this school district to MIG 3 from MIG 2. The downgrade to MIG 3 reflects Moody's revised methodology for evaluating the credit quality of US Bond Anticipation Notes (BANs). The rating further reflects enhancement provided by the New York State99-B Post Default enhancement program, the long-term credit characteristics of the district, and an adequate history of market access.
  • Howard University, DC: Moody's downgraded this university to Baa3 from Baa1. The downgrade to Baa3 reflects the precipitous deterioration of hospital operations represented by an estimated $37 million operating loss for fiscal year 2014 and continuing significant changes in senior leadership. The hospital turnaround is taking longer than planned, eroding the hospital's market and taxing available liquidity.
  • City of Beaver Dam, WI: Moody's downgraded this city to A1 from Aa3. The downgrade to A1 reflects the city's diminished liquidity position primarily as a result of underperforming wastewater enterprise operations. Also incorporated in the rating is the city's moderately-sized tax base; consistent governmental operations outside of enterprise pressures; below average socioeconomic characteristics; manageable pension exposure; and elevated debt burden.
  • General Services Administration: Moody's downgraded three federal lease ratings by one notch. There are the following: $23.5 million Lease Revenue (Tacoma Union Stadium Federal Courthouse Project), Series 1990 & 1992, issued through the City of Tacoma, downgraded to Aa2/Stable from Aa1/Stable; $16.4 million Taxable Revenue Bonds, issued by QLD-WACC, LLC, downgraded to Aa3/Stable from Aa2/Negative; $12.4 million Bonneville Power Administration Inter Agency Agreement Backed Pass-Through Trust, Series 2010-1, issued by Guggenheim Energy Funding LLC, downgraded to Aa3/Stable from Aa2/Stable.
  • University of Detroit Mercy, MI: Moody's downgraded to A2 from Aa3 the long-term ratings and affirmed the VMIG 1 short-term ratings of the Michigan Higher Education Facilities Authority Variable Rate Demand Limited Obligations Revenue and Revenue Refunding Bonds (University of Detroit Mercy Project) Series 2007 ("Series 2007 Bonds") and the Michigan Finance Authority Higher Education Facilities Variable Rate Demand Limited Obligations Revenue Bonds (University of Detroit Mercy Project) Series 2011 ("Series 2011 Bonds" and collectively with the Series 2007 Bonds "the Bonds") in conjunction with the substitution of the existing letters of credit with substitute letters of credit (LOCs) provided by Comerica Bank (the Bank).
  • Commonwealth of Puerto Rico: Moody's downgraded Puerto Rico's General Obligation bonds from Ba2 to B2. The downgrades of Puerto Rico and its debt-issuing entities follow the commonwealth's enactment of a law (the Puerto Rico Public Corporation Debt Enforcement and Recovery Act) that will allow public corporations to defer or reduce payments on outstanding bonds. By providing for defaults by certain issuers that the central government has long supported, Puerto Rico's new law marks the end of the commonwealth's long history of taking actions needed to support its debt. It signals a depleted capacity for revenue increases and austerity measures, and a new preference for shifting fiscal pressures to creditors, which, in our view, has implications for all of Puerto Rico's debt, including that of the central government. Application of the law may further limit the commonwealth's market access, leaving it more vulnerable to financial risk and unable to fund capital projects.
  • Spartanburg County Tourism Public Facilities Corporation, SC: Moody's downgraded this corporation's Hospitality Tax Certificate of Participation, Series 2009, to A2 from A1. The A2 rating reflects the inherent weaknesses in the lease structure, including an appropriation pledge of hospitality tax revenues from the unincorporated sections of Spartanburg County.
  • City of Ketchum, ID: Moody's downgraded this city's Sewer Enterprise Revenue bonds to Baa1 from A3. The downgrade primarily reflects the system's weakened financial position evidenced by declines in liquidity levels that were driven by cash funding of one-time projects. The rating also considers the small customer base located in an affluent recreational touristic service area. Further, the rating incorporates a manageable debt ratio with average principal amortization and adequate legal provisions.
  • Silver Consolidated School District No. 1, NM: Moody's downgraded this school district to A2 from A1. The downgrade to A2 reflects the district's consecutive years of deficit spending, depleting the already limited reserves. The rating also considers the moderately sized, stable tax base. The rating further reflects the district's declining enrollment, below average socioeconomic characteristics, and average debt burden with rapid payout.
  • Vermilion County CUSD 76, IL: Moody's downgraded this school district to A3 from A2. The A3 rating reflects the district small tax base that has recently experienced valuation declines; pressured financial operations marked by declining reserves; poor labor market and demographic trends; reliance on pressured state aid revenues; and an above average debt burden.
  • Reed City Public Schools, MI: Moody's downgraded this organization to Baa3 from Baa1. The downgrade to Baa3 primarily reflects continued imbalance of financial operations that stems from a long-term trend of declining enrollment and has resulted in a very challenged financial position. The current rating also incorporates the district's modestly-sized depreciating tax base with below average socioeconomic indices, very limited financial flexibility, manageable debt burden and long term risks posed by exposure to an underfunded cost-sharing retirement plan.
  • Marion County School Board, FL: Moody's downgraded this school board's Certificates of Participation (COPs) rating to A2 from A1, and has concurrently downgraded the district's Issuer Rating to A1 from Aa3. The issuer rating downgrade to A1 is primarily based on the declining financial condition of the district after successive operating deficits. The A2 COP rating is based on a diminished but still adequate level of capital outlay millage available to repay the certificates, as well as the strength of the master lease, which is highly asset-backed, and the above average payout on the outstanding certificates.

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