The markets rose higher this week, as investors received positive news from overseas and digested some of the final reports from the first earnings season of 2015. Though the Greek debt crisis initially caused markets to sink lower earlier in the week, some progress on a deal helped calm investors as the week progressed. Russia and Ukraine’s ceasefire agreement on Thursday also managed to buoy major indexes through the end of the week. Friday morning saw the release of Germany’s economic growth data, which came in at 0.7%, above the expected 0.3%.
As earnings season winds down, Hasbro (HAS), CVS Health (CVS), Coca-Cola (KO), Time Warner (TWX), and Pepsico (PEP) all posted estimate-beating results, while Loews Corporation (LOW), Molson Coors (TAP) and Advance Auto Parts (AAP) missed analysts’ expectations. In macro news, U.S. Import sales were down 2.8% for January, marking the seventh straight month of declines. The UofM’s Consumer Sentiment numbers were released Friday morning, coming in at 93.6, which is far below the 98.1 that was expected. Initial jobless claims for the week came in at 304,000, above the expected 287,000, and a 25,000 jump from the week prior. The yield on 10-Year Treasuries started at 1.96 this week and reached a high of 2.01 on Tuesday before settling back at 1.99 by Thursday’s close. Below, we look at all of Moody’s municipal bond upgrades and downgrades from the past week.
- Maryland Community Development Administration: Moody’s upgraded this administration’s $15.9M Local Government Senior Bonds, Series 2010 A-1, $14.1M Local Government Senior Bonds, Series 2013 A-1, and $27.6M Local Government Senior Bonds, Series 2014 A-1 to Aa1 from Aa3. The upgrade of the senior bond rating to Aa1 from Aa3 reflects an update in Moody’s ratings approach, now focusing on the ability of interceptable state aid funds to fully cover senior debt service, with less emphasis on the underlying credit quality of the largest pool participants.
- Sarasota County, FL: Moody’s upgraded this county to A3 from Baa1. The upgrade to A3 incorporates the county’s recovering taxable values following several years of protracted losses, which has improved coverage levels. The rating also factors the still narrow coverage and weak legal provisions, which include a 1.1x maximum annual debt service additional bonds test and the lack of a debt service reserve fund.
- California Housing Finance Agency: Moody’s upgraded this agency to A3 from Baa2. The A3 rating reflects the program’s solid financial performance demonstrated by increased balance sheet strength and profitability, satisfactory loan performance with relatively low single family mortgage loan delinquencies and foreclosures, and improved cash flow projections under all stress runs. The seasoning of the loans further supports the rating and provides cushion in the event of a potential downturn.
- Ohio County Water District, KY: Moody’s upgraded this water district to A1 from A2. The rating reflects the district’s above average reserve position, small service area with a stable, but concentrated customer base, as well as strong legal protection for bondholders. The rating also incorporates historically adequate debt service coverage that is expected to improve given recent debt retirements and no plans for additional near term borrowing.
- Snyderville Basin Special Recreation District, UT: Moody’s upgraded this recreation district to Aa1. The Aa1 rating reflects the district’s large and wealthy tax base that benefits from its proximity to Park City and Salt Lake City; structurally balanced financial operations with healthy reserve levels; and manageable debt burdens.
- St. James Electric Enterprise, MN: Moody’s upgraded this electric enterprise to A2 from A3. The upgrade to A2 reflects the utility’s satisfactory financial operations supported by unlimited rate-setting authority; sufficient debt service coverage; healthy liquidity; and strong legal provisions. The rating also reflects the utility’s limited customer base, with high concentration among the system’s largest user.
- Los Gatos, CA: Moody’s upgraded this town to Aaa from Aa1. The upgrade to Aaa primarily reflects the town’s strong economic prospects that will further advance this already affluent and prosperous community. The Aaa rating also reflects the town’s strong financial management, as demonstrated by a consistent trend of large operating surpluses throughout the recession, resulting in robust reserves and liquidity. The rating additionally reflects recent actions taken by the town to lower its moderate debt and pension burdens.
- Waukee (City of) Water Enterprise, IA: Moody’s upgraded this water enterprise to A1 from Aa3. The Aa3 rating reflects the enterprise’s growing service area in the Des Moines (Aa2 stable) metro area; stable financial operations with healthy cash balances; modest debt burden with strong debt service coverage; and satisfactory legal covenants.
- Maryland Community Development Administration: Moody’s downgraded this administration’s $7.0M Local Government Subordinate Bonds, Series 2010 A-2 to Aa2 from Aa1. The downgrade of the senior bond rating to Aa2 from Aa1 reflects a change in Moody’s ratings approach, focusing on the underlying ability of the largest participant to make debt service payments, rather than utilizing the “Weakest Link Plus” approach under the “Public Sector Pool Financings” methodology.
- Maryland Community Development Administration: Moody’s also downgraded this administration’s $3.8M Local Government Subordinate Bonds, Series 2012 A-2 to Aa3. The downgrade of the senior bond rating to Aa3 from Aa2 reflects a change in Moody’s ratings approach, focusing on the underlying ability of the largest participant to make debt service payments, rather than utilizing the “Weakest Link Plus” approach under the “Public Sector Pool Financings” methodology.
- Bombardier Inc.: Moody’s downgraded this company to B1 from Ba3. "We lowered Bombardier’s ratings to B1 because we view its planned increase in debt and ongoing execution challenges with continuing elevated free cash flow consumption as inconsistent with a Ba3 rating, said Darren Kirk, Moody’s Vice President and Senior Credit Officer. “We are continuing our review until we gain confidence that Bombardier will successfully raise $1.5 billion in debt and $600 million in common equity to boost its liquidity”, added Kirk. Moody’s expects to confirm Bombardier’s B1 CFR if the company executes its financing plans however the rating on its senior unsecured notes could still be lowered if the company obtains secured debt with its funding initiatives.
- Raton Public School District 11, NM: Moody’s downgraded this school district to Baa1 from A3. The Baa1 rating reflects Raton PSD 11’s declining cash and fund balance; stable tax base with below-average socioeconomic indices; and low debt burden with rapid payout. The downgrade to Baa1 also considers the district’s current building re-configuration plans and manageable pension burden.
- City of Lansing, MI: Moody’s downgraded this city to A1 from Aa2. The A1 rating is based on the system’s moderately sized operations; healthy financial position; strong rate setting history; and above average debt burden. The A1 rating also considers the system’s large outstanding capital needs that will likely necessitate an increase in the debt burden or reduction in system reserves to fully address. Also incorporated into the A1 rating is the system’s healthy debt service coverage for senior lien revenue debt with narrow coverage for all system debt.
- Avon, MN: Moody’s downgraded this city to Baa1 from A3. The downgrade to Baa1 reflects the city’s extremely leveraged position relative to its very small tax base. The Baa1 rating also incorporates attributes including a favorable socio-economic profile; ample cash and reserves relative to the city’s small budget; and manageable pension obligations.
- Altoona, IA: Moody’s downgraded this city to A1 from Aa3. The A1 rating reflects the system’s growing service area in the Des Moines (Aa2 stable) metropolitan area; significant customer concentration which is expected to grow due to the addition of a new large customer; unlimited rate-setting authority; strong liquidity and satisfactory debt service coverage; moderate debt burden and additional future liabilities expected due to ongoing capital needs of the Des Moines Metropolitan Wastewater Reclamation Authority (WRA; revenue rated Aa3); and satisfactory legal provisions.
- Mashantucket (Western) Pequot Tribe, CT: Moody’s downgraded this tribe to Ca from Caa3. The Mashantucket Pequot Tribal Nation (Tribe) conducts the gaming and resort operations of Foxwoods Resort Casino through the Mashantucket Pequot Gaming Enterprise, a wholly-owned, unincorporated division of the Tribe.
- East Cleveland City School District, OH: Moody’s downgraded this school district to A3 from A1. The A3 underlying rating reflects the district’s sharply deteriorating financial position following multiple consecutive operating deficits resulting in drawdowns of reserves. The rating also incorporates the district’s limited tax base, weak socio-economic profile, and high unfunded pension obligations.
- 19th Judicial Dist. Bldg. Comm., LA: Moody’s downgraded 19th Judicial Dist. Bldg. Comm. to Baa2 from Baa1. The Baa2 rating reflects the economic strength of the Baton Rouge area, yet the very narrow nature of the special tax pledge. The rating also takes into consideration adequate legal provisions for the bonds, including a debt service reserve which is expected to be funded with a surety, as well as additional liquidity set aside in a rate stabilization account. The rating downgrade reflects the declining revenue trend that has experienced volatility in recent years as well as weak total collections that do not currently meet annual debt service requirements.