Moody’s Drops Miami GOs Ahead of Stadium Parking Deal

BRADENTON, Fla. — Moody’s Investors Service yesterday downgraded Miami’s general obligation ratings just ahead of a financing to build parking garages for the Marlins’ new baseball stadium, which is under construction.

Moody’s downgraded $34.5 million of unlimited-tax GO bonds to A1 from Aa3, $234.5 million of limited-tax GOs to A3 from A2, and $106 million of  non-ad valorem obligations backed by the city’s covenant pledge to A2 from A1. Negative outlooks were assigned to the bonds.

The downgrades “reflect the city’s continuing severely narrow financial condition exacerbated by uncontrolled pension increases and rapidly rising health care costs, which have made the ability to adhere to established financial principles untenable,” Moody’s said.

Moody’s recognized the city’s still sizable tax base, its broad-based and regionally important economy with favorable long-term recovery prospects, and moderate debt profile. But it expects financial operations will remain strained over the medium term as the city grapples with reduced reserves and budget pressures while trying to implement a recovery plan.

Standard & Poor’s dropped Miami’s GO rating to A-minus from A-plus and its covenant to budget and appropriate debt to BBB-plus from A on June 16. It also said its outlook is negative.

Miami has experienced multi-year deficits, with another projected at the end of fiscal 2010, and has used reserves to cover deficits.

Analysts have noted that the city is the subject of an ongoing Securities and Exchange Commission inquiry, which is believed to center around the deficit and whether Miami properly disclosed its financial condition to investors in bond documents.

The city’s downgrades come as it plans to sell $105 million of special obligation parking revenue bonds secured by convention development taxes.

“Obviously, we would have preferred not to be downgraded — however, in light of the fiscal strains we and many other cities around the country are experiencing, we understand the downgrade,” said Miami chief financial officer Larry Spring. “We continue to work diligently on fiscal strategies that will eventually help the city stabilize and move forward financially.”

Spring said the downgrade could potentially affect the pricing of the bonds, “but we won’t know the real impact until we go to market.”

The bonds are expected to price July 21 with Bank of America Merrill Lynch as the book-runner. Proceeds will be used to build several parking garages and refurbish surface lots for the new stadium.

Moody’s rated the bonds A2. Standard & Poor’s has not yet released a rating.

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