During this holiday-shortened trading week, investors saw some major earnings releases, positive jobs news, Fed minutes, and more turmoil from overseas.
In earnings news this week, the world’s largest retailer, Wal-Mart, reported its fourth quarter results on Thursday morning, posting higher sales and earnings, but missing analysts’ EPS estimates. On Friday morning, Deere & Co. reported much lower sales and earnings for its first quarter, but managed to beat analysts’ estimates. Thursday also saw the release of the Initial Jobless claims report, which came in at 283,000 – below the 290,000 expectation. On Wednesday afternoon, the Fed minutes were released, which showed that the Federal Reserve is still planning on raising interest rates in June, though it is paying close attention to weakness in international markets and and falling U.S. inflation expectations. Markets opened lower on Friday morning, as uncertainty surrounding the Greek debt deal is still weighing on investors. Yields on 10-Year Treasuries were down this week, having started off Tuesday 2.14 and closed Thursday at 2.11. Below, we look at all of Moody’s municipal bond upgrades and downgrades from the past week.
- Wasatch (County of), UT: Moody’s upgraded this county to Aa2 from Aa3. The rating level reflects the county’s strong financial position characterized by robust reserves and ample liquidity and the county’s low debt burden. The rating also reflects the county’s moderately sized tax base that has resumed growth, the average resident wealth levels and somewhat limited economy.
- Livingston (City of), TX: Moody’s upgraded this city to A3 from Baa1. The upgrade to A3 from Baa1 primarily reflects the city’s stabilized financial performance, General Fund reserve growth, and sufficient coverage of debt obligations provided by pledged and available non-ad valorem sources. The rating also incorporates the city’s modest and growing tax base coupled with a below average socio-economic profile.
- Plateau Utility District, TN: Moody’s upgraded this district to A2 from A3. The upgrade to A2 reflects the district’s healthy financial operations which provide solid debt service coverage and a satisfactory liquidity position. The rating also incorporates the district’s small customer base despite a recent merger with Sunbright Utility District, substantial customer concentration, manageable debt profile, and adequate legal provisions.
- New York Public Library, NY: Moody’s upgraded this library to A1. The upgrade to A1 reflects the library’s healthy growth in financial reserves, with cash and investments increasing by nearly 60% over the past five years, to $1.2 billion. The A1 rating also incorporates the New York Public Library’s internationally prominent position as one of the largest libraries in the world, benefiting from strong annual philanthropic support, and substantial operating and capital support from the Aa2-rated City of New York. Leverage will remain manageable with no future borrowing plans identified.
- Fairmont Area Schools I.S.D. 2752, MN: Moody’s upgraded this school district to Aa3. The Aa3 underlying rating reflects the district’s moderately-sized and expanding tax base, rapidly improving and strong financial reserve position, stable enrollment trends, and an above average debt burden with below average rate of amortization.
- New Orleans Aviation Board, LA: Moody’s upgraded New Orleans Aviation Board’s $96.5 million Consolidated Car Rental Facility Series 2009A Bonds to Baa1 from Baa2. The Baa1 rating is based on the higher than forecasted growth in transaction days which boosted debt service coverage ratios (DSCRs) above forecasted levels and the established history of demand for rental cars at the airport. The rating also acknowledges the high initial customer facility charge (CFC) and no currently anticipated rate increases due to recent solid enplanement and car rental growth at the airport.
- Fayette County, GA: Moody’s upgraded this county to Aaa from Aa1. The assignment of the highest credit quality reflects the county’s ample reserve position, which benefits from conservative management and formal fund balance policies, a moderately-sized tax base with above average demographics and very low debt and pension burdens.
- Puerto Rico Hwy & Trans Auth: Moody’s downgraded this authority to Caa1 from B2. Tax revenue shortfalls attributable to sluggish economic growth may accelerate the depletion of Puerto Rico’s already very narrow liquidity, leaving the commonwealth unprepared to manage substantial growth in debt payments in the fiscal year starting July 1. Continued liquidity for operations and debt repayment depends on access to a small lender group.
- Cleveland County I.S.D. 29 (Norman), OK: Moody’s downgraded this school district to Aa3 from Aa2. The downgrade to Aa3 reflects Cleveland County Independent School District No. 29’s weak financial reserves from consecutive years of operating deficits and our expectation that reserve levels will continue to erode in fiscal 2015. The Aa3 rating also incorporates the district’s limited operating tax rate flexibility, sizeable tax base that benefits from the institutional stability of the University of Oklahoma, and a manageable debt profile despite plans for additional near term borrowing. The Aa3 rating further incorporates the district’s reliance on capital market access to annually issue general obligation bonds sufficient to make rental payments on its outstanding lease revenue bonds.
- Town of Somers, WI: Moody’s downgraded this town to Baa2 from Baa1. The Baa2 rating reflects persistently negative reserve levels despite a modest unaudited surplus in fiscal year 2014. The town nearly expended their entire fund balance in fiscal year 2011 to finance a town hall expansion, and reserves continued to fall to negative levels in subsequent years due to expenditures coming in over budget. Although management is hopeful that the town will recover a positive fund balance in fiscal year 2015, strict levy limits restrict town management from implementing material revenue enhancements. In addition, town management has yet to implement significant expenditure reductions in an effort to replenish reserves. The rating is also based on the town’s elevated debt burden, declining assessed values, and above average socioeconomic profile.
- Silver Consolidated S.D. 1 (Grant County), NM: Moody’s downgraded this school district to Baa1 from A2. The downgrade to Baa1 reflects Silver CSD’s declining cash and fund balance; lack of concrete plans to balanced operations; and high pension burden. The Baa1 rating also considers the district’s growing tax base with below-average socioeconomic indices; and low debt burden with rapid payout.
- Cook County School District 79 (Pennoyer), IL: Moody’s downgraded this school district to A2 from Aa3. The A2 rating reflects the district’s reoccurring operating deficits projected to continue through fiscal 2015, rapidly declining reserves, and a modest tax base that has experienced significant declines in recent years. The rating also incorporates limited budgetary flexibility to increase revenues or reduce expenses, low debt with no borrowing planned in the near term, and additional liquidity in the Working Cash Fund. The GOLT rating also reflects the presence of a designated levy amount with an unlimited rate with ample coverage to pay debt service.
- Sangamon County S.D. 186 (Springfield), IL: Moody’s downgraded this school district to A2 from A1. The A2 rating on the district’s GOLT DSEB debt reflects the district’s deteriorating financial position, with reserve levels and liquidity well below those of similarly rated entities. The A2 rating also incorporates the district’s limited revenue raising flexibility and the potential for an increase in pension costs that may be shifted from the State of Illinois (A3 negative).
- Mount Orab (Village of), OH: Moody’s downgraded this village to Baa1 from A3. The downgrade to Baa1 reflects the village’s modest reserves that are expected to remain at current levels for the near to medium term, small tax base with limited growth planned, and elevated debt burden that is expected to increase. The village’s below average socioeconomic profile and taxpayer concentration are also incorporated into the rating.
- Fairmont State University, WV: Moody’s downgraded this university to A2. The A2 rating reflects FSU’s strong financial management and budgetary practices, healthy support from the State of West Virginia (Aa1 stable), continued debt service support from the co-located Pierpont Community & Technical College (PCTC), and solid annual cash flow.
- Cheboygan Area Schools, MI: Moody’s downgraded this school district to Baa1 from A1. The downgrade to Baa1 reflects the district’s significant operating deficits that have resulted in a rapidly deteriorating financial position, including a deficit General Fund balance position. Also incorporated into the rating is the district’s moderately-sized tax base, limited revenue raising flexibility, and low debt burden with rapid amortization.
- Altoona Water Authority, PA: Moody’s downgraded this water authority to A2 from A1. The downgrade to A2 reflects the authority’s narrow debt service coverage following three consecutive years without a rate increase; moderately heavy capital requirements associated with operating a large and complex water system; adequate liquidity; and manageable debt burden.