DALLAS — Standard & Poor’s upgraded the underlying credit of Pampa to A-minus from A, as the Texas panhandle town sold certificates of obligation.
Located about 55 miles northeast of Amarillo, Pampa sold $9.1 million of water and sewer system surplus revenue COs yesterday through a negotiated sale with Estrada Hinojosa & Co and Morgan Keegan & Co. as co-managers. Results of the sale weren’t immediately available.
Southwest Securities Inc. is the financial adviser to the city and Fulbright & Jaworski LLP is bond counsel.
Finance director Robin Bailey said proceeds will fund construction of a new section of the city’s landfill, as well as a new water park and enhancements to a water well.
Standard & Poor’s said the higher rating reflects the city’s continued tax base growth, sound financial position, and low overall debt per capita. Pampa doesn’t have any revenue debt outstanding nor any authorized but unissued bonds.
Upgrades indicate the credit quality of an issuer is improving, often lead to lower costs of borrowing for future debt issuances, and may negate the need for bond insurance due to the underlying strength of the credit.
Pampa’s consistent maintenance of “good reserves” also helped the rating, while limitations on the local economy, which is heavily dependent on petroleum processing and agriculture, mitigates the credit strengths, according to analysts.
“We believe high oil and gas prices will continue to provide a short-term boost to the local economy and to the city’s financial position in the form of AV growth and higher retail sales,” said Standard & Poor’s credit analyst Kate Choban.
Last week, Standard & Poor’s upgraded the underlying credit of 16 other small Texas communities, saying the credit characteristics inherent with smaller tax and population bases have lessened.
“These entities warrant higher ratings because of their stable financial positions and generally high reserve levels, coupled with low debt burdens and very limited capital plans,” credit analyst Paul Jasin wrote in last week’s report.
Moody’s Investors Service assigned its A3 rating to the Pampa sale and affirmed the rating on $12.1 million of parity debt outstanding.
Analysts said the rating reflects the city’s increasing but limited tax base, history of healthy reserves, and a moderate debt burden.
Pampa’s current population of 21,000 is up about 17% from the 2000 Census. After rising slowly but steadily the previous three decades, the city’s population fell in the 1990s, as oil and gas production eased across West Texas.
Standard & Poor’s said “recent growth in oil and gas prices has generated additional economic activity in the area, reversing a long trend of declining population.”
Moody’s said although the city’s tax base decreased in fiscal 2004 and 2005, the full valuation has increased each year since and experienced a average annual growth of 5.5%. The decline a few years ago was primarily due to the closings of a grocery store and oilfield services company, according to analysts.
The city’s fiscal 2009 taxable-assessed value of $527.1 million represents a 31% increase from five years earlier.
Analysts also said the Texas panhandle and specifically Pampa “may potentially experience growth related to the possible construction of a large wind farm in the area surrounding the city, but the time frame of construction is uncertain given the nature of the current energy markets.”
