DALLAS - Now that a new financial management team has completed long-delayed audits, Fort Worth is coming back to market this week with the competitive sale of $141.8 million in general obligation debt.
The rapidly growing city plans to offer $85.2 million of general purpose refunding and improvement bonds and nearly $55.6 million of combination tax and limited-surplus revenue certificates of obligation today.
Estrada Hinojosa & Co. and First Southwest Co. are co-financial advisers to the city, which is located in triple-A rated Tarrant County. McCall, Parkhurst & Horton LLP and Kelly, Hart & Hallman LLP are co-bond counsel.
Fort Worth has relied upon private placements to issue debt the past few years due to its inability to file audits in a timely manner.
One North Texas financial adviser said the private placements "probably cost the city six or seven basis points, but it can often be safer and more efficient to use the private placement because you're dealing with institutional and educated investors."
Standard & Poor's upgraded its underlying rating on the city's GO debt two notches to AA-plus from AA-minus ahead of today's sale due to "maintenance of strong reserves, coupled with an improvement in the timely delivery of monthly financial reports."
The agency dropped the city's GO rating last November to AA-minus due to falling reserves levels and the delays in financial reporting.
"We expect that the city will sustain its sound financial position," Standard & Poor's credit analyst Kate Choban said. "We also expect that management will maintain its manageable debt burden while the local economy remains diverse and stable."
Lena Ellis, the city's financial management services director and chief financial officer, said the upgrade could result in savings of $650,000 to $670,000 over 20 years.
"Just like your personal finances, improved credit helps lower interest rates," she said.
Moody's Investors Service assigned its Aa2 rating to the debt, citing the "continuing challenges related to the city's financial reporting infrastructure."
Moody's analysts also affirmed the Aa2 rating and stable outlook on the city's $552 million of outstanding GO debt, while affirming an Aa3 rating on $21.4 million of outstanding lease-revenue bonds.
Fitch Ratings assigned a AA rating to today's sale. In August 2007, Fitch lowered its rating on Fort Worth's general obligation bonds and water and sewer system debt to AA from AA-plus, citing the delays in the filing of the comprehensive annual reports. The agency rates the city's lease-revenue bonds at AA-minus.
Fort Worth's filing delays started about five years ago when an auditor ran into difficulty reconciling bank statements to the general ledger, according to analysts. The auditor noted "material weakness" in the reconciliation method, tracking of assets and internal controls. Delays in filing the fiscal 2004 report consequently led to delays in completing the statements for the following few years.
Ellis said the city has made great strides in improving its financial management team and has hired a handful of new people with master's of business administration degrees and other advanced degrees, as well as some certified public accountants.
Former CFO Karen Montgomery is now an assistant city manager, and Fernando Costa, Charles Daniels and Tom Higgins have been assistant city managers for about a year. Ellis has been with Fort Worth for two years.
She said the new fiscal management team recently completed the long-delayed comprehensive audited financial results for fiscal years 2006, 2007, and 2008, and she anticipates having this year's results submitted on time.
Fitch analysts cited the "proactive leadership" that reorganized the fiscal services department and formed an audit and finance committee to address the accounting issues.
Analysts also noted that the audited results are consistent with the double-A rating category and that the city's financial performance has remained strong with an unreserved fund balance of 18.6% of expenses despite the inability to file the audits on time.
Fort Worth's taxable-assessed value averaged 8% annual growth the past five years and now stands at $40.9 billion. While the growth rate is anticipated to slow somewhat next year due to the overall national recession, analysts still expect the city's economy to become more diversified and transition away from one dominated by aerospace and other military-related industries.
"The economic outlook for our city is a lot better off than other communities across the United States," Ellis said.
Fort Worth, as well as most of Tarrant County, has benefited of late from increased natural-gas drilling and production in the Barnett Shale, which some consider to be the largest inland natural-gas field in the world.
The city has added almost 194,000 new residents since the 2000 census and is now the 17th largest city in the country, home to more than 728,000 people.
Proceeds from today's sale will fund numerous street and highway upgrades and expansions, as well as updating telecommunications systems among other projects.
Following this sale, the city will have about $131 million of authorized but unissued debt from bond packages approved in 2004 and May 2008. The most recent bond package will address much-needed street and roadway improvements to keep pace with the area's unprecedented growth and development. And officials plan to continue to issue the bonds competitively.
"Our financial advisers were a little concerned with a competitive sale because they felt we should go with a negotiated deal to tell our story, so to speak," Ellis said. "But we have traditionally used competitive sales because we feel they provide more transparency for investors and taxpayers alike."
