Moody’s Investors Service has downgraded Grand Rapids, Minn.’s one notch to A2 due to credit challenges that include a tax base that is highly concentrated and dependent on one local corporation.
The review was conducted in conjunction with the city’s issuance this week of $28.5 million of general project loan bonds that are secured by the city’s general obligation unlimited-tax pledge.
After the sale, the city will have $63 million of GO debt and $1 million of lease revenue debt that is rated one notch lower.
Proceeds of the sale will finance the construction of a new wastewater treatment plant and related infrastructure for the project in the city, located about 175 miles north of the Twin Cities and 80 miles northwest of Duluth.
Analysts attributed the downgrade to the high degree of concentration in Grand Rapid’s tax base, with dependence on UPM Blandin — a paper manufacturer that is experiencing challenges — below-average wealth levels, and high debt levels.
The city’s credit benefits from historically strong financial performance with healthy and liquid reserves.
UPM Blandin is the highest-rated European paper and forest product company. Earlier this year Moody’s downgraded the company to Ba1 from Baa3, partially due to the structural difficulties the industry is facing as the result of an unprecedented contraction in demand that began in 2008.
