Peoria, Ariz., Raised To Aa2 by Moody’s

Moody’s Investors Service assigned a Aa3 rating to Peoria, Ariz.’s $47 million of Series 2008 senior-lien transportation sales tax and subordinate-lien excise tax and state shared revenue bonds, and upgraded the city’s GO rating to Aa2 from Aa3, affecting $126.2 million of GOs.

Additionally, Moody’s upgraded to Aa3 from A1 the city’s approximately $21.7 million of general excise tax obligations.

The current offering is secured by a first-lien pledge on Peoria’s 0.3% transportation excise tax and a subordinate lien on its general excise tax and state shared revenues.

Proceeds from the current issue will be used for various transportation related capital projects. The Aa3 rating on the current offering primarily reflects the strong legal pledge, healthy coverage of annual debt service payments, and no future parity borrowing plans in the near term.

The upgrade on the city’s GOs reflects a trend of solid financial performance characterized by strong management and sound fiscal policies, sizeable tax base, favorable demographics, and manageable debt profile.

Legal provisions for the current sale include a strong two-tier additional bonds test requiring both three times maximum annual debt service, or MADS, coverage on all outstanding and new debt secured by the city’s preceding fiscal year’s excise tax and state shared revenues and a 1.1 times MADS coverage using the city’s preceding fiscal year’s transportation sales tax revenues.

In addition, a debt service reserve requirement will be triggered should pledged revenues fall below 1.5 times annual debt service, requiring full funding within twelve months. The reserve requirement is equal to the lesser of MADS, 125% of annual debt service, or 10% of par. Unlike most excise tax obligations, Peoria’s has also included a 1.5 times rate covenant from prior year’s revenues, although the city’s ability and willingness to raise the dedicated, voter-approved tax rate remains to be tested.

Moody’s believes that Peoria’s prudent practice of using a combination of pay-go and debt financing for capital needs, along with continued population growth and economic expansion, will continue to provide support for future growth in the sales tax, and continue to provide satisfactory debt service coverage. The 0.3% transportation sales tax was approved by voters in 2005, with collections beginning in fiscal 2006, to finance the city’s multi-year transportation capital program.

Security for the current offering is provided by a first-lien pledge from the 0.3% transportation excise tax and a subordinate lien on Peoria’s general sales tax and state shared revenues. Sales tax receipts are collected on a monthly basis, with debt service payments remitted to the trustee twice a year. 

 

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