DALLAS - Some eight months after Hurricane Ike devastated the Gulf Coast region of Texas, Standard & Poor's removed the island city of Galveston's general obligation bonds and waterworks and sewer system debt from negative watch.
Analysts said the move comes as city officials provided updated information showing improved short-term liquidity for operations.
The rating for the bonds remains BBB as analysts expect the damage caused by the category four hurricane that hit land Sept. 13 "will have a significant long-term effect on the city's economy and local revenue bases, and that full recovery will take years."
In January, Standard & Poor's downgraded Galveston's GO credit rating four notches to BBB, reversing an upgrade to A-plus issued about two months before the storm. The rating on the waterworks and sewer system debt also was lowered to BBB from A-minus earlier this year.
Analysts said both the GOs and the water and sewer bonds still carry investment-grade ratings due to Standard & Poor's expectation that the city can continues to meet its debt-service requirements.
"We believe the city has implemented cost-saving measures to stabilize revenue declines, and we expect that management will continue to make expenditure cuts as needed to maintain adequate operations," credit analyst Kate Choban said. "We also expect that while the city's operations will remain strained in the near future, the city will continue to meet its debt service obligations."
First Southwest Co. and Louis Pauls & Co. are co-financial advisers to Galveston, and Vinson & Elkins LLP serves as bond counsel.
Louis Pauls, president of his eponymous firm based in Galveston, said a $20 million line of credit from three banks allowed the city to plug some holes and maintain operations as best it could the past few months.
Pauls said the Galveston seawall spared much of the city from destruction. The seawall - which was built following the flood of 1900 and ranges from 10 feet high to 17 feet tall in some places - requires about $10 million in repairs stemming from Ike, and this year's hurricane season begins in less than two weeks.
It's estimated that about 75% of the city's homes and businesses were flooded during the storm, which eroded shorelines and heavily damaged the mainland all the way to Houston some 50 miles inland.
Most of the structures on Bolivar Peninsula, which is just across the mouth of Galveston Bay from the city, were completely washed away.
Pauls said he isn't sure when Galveston will be bringing new-money bonds to market, as officials await federal money. The city has about $39.1 million of GO debt outstanding and no authorized but unissued bonds. In November, voters approved an extension of a half-cent sales tax initially intended for normal maintenance of streets, drainage, and parks that will now be used to help fund recovery efforts.
"They're still waiting to see exactly how much [Federal Emergency Management Agency] money comes in and it's supposed to be a lot," Pauls said. "The port is also expecting a lot of federal funds, be it FEMA dollars or stimulus money. Much of the funds coming in will be for housing, including public housing and low- to mid-income housing."
Galveston's population remained stable at about 58,000 the past decade, and its fiscal 2008 taxable-assessed value of $4.04 billion is up 67% from five years earlier. But the number of residents that left after the storm and don't plan to return isn't known and overall financial impact remains unclear. Some estimates show the population to have dropped by a third since the storm.
Moody's Investors Service rates the city's underlying GO credit at A2 with a negative outlook. Fitch Ratings doesn't rate the city.
