SAN FRANCISCO — Moody’s Investors Service downgraded Wenatchee, Wash.’s general obligation ratings three notches due to concerns over city-backed debt issued to pay for a struggling arena.
The agency cut the city’s unlimited-tax GO rating to A3 from Aa3 and its limited-tax GO rating to Baa2 from A1. Moody’s also placed the city’s rating on review for possible further downgrade.
Moody’s said its actions are a result of the uncertainty surrounding the potential default by the Greater Wenatchee Regional Events Center Public Facilities District on $36 million of bond anticipation notes that mature Dec. 1.
The city of 30,000 supports notes issued by the public facilities district to help fund construction of the Town Toyota Center arena, a financial flop since opening in 2008.
The district issued three series of notes in 2008 for the arena: $5 million of limited sales-tax Bans, $5.5 million of revenue and special-tax Bans, and an additional $31 million of revenue and special-tax Bans.
The district had planned to issue long-term bonds to pay off the notes with the support of a contingent loan agreement from the city. However, after the city filed a validation action, a Superior Court judge ruled in September that the debt would put Wenatchee over its non-voter-approved debt limit, according to bond disclosure documents filed with the Municipal Securities Rulemaking Board’s EMMA website.
The state Supreme Court set oral arguments on the city’s appeal for Jan. 10, almost six weeks after the notes mature.
Washington Treasurer Jim McIntire has said he will ask the Legislature to loan $42 million to try to protect the state from the repercussions of the facilities district’s default.
The legislation would have to be pushed through and signed in only three days during a special session scheduled for Nov. 28.
Moody’s said the city’s finances could be stressed by the court’s ruling because it may have to make further cuts to make debt service payments on the Bans and the city is exposed to litigation should the district default on the notes.
Moody’s said Wenatchee’s modest tax base leaves little room for extra fiscal strain.
State officials are trying to prevent any default that could raise the specter of the Washington Public Power Supply System’s $2.25 billion default on tax-exempt debt in the 1980s. The WPPSS, or Whoops, debacle haunted the state’s ratings for years.
On Sept. 28, Standard & Poor’s lowered its short-term rating on the 2008 revenue and special-tax notes to SP-3 from SP-2. At the same time, it upgraded the limited sales-tax Bans to SP-1 from SP-2.
Standard & Poor’s also lowered the underlying rating on Wenatchee GOs to A-minus from A, and kept a negative outlook because of problems stemming from the arena debt.
Wenatchee has $12.8 million of non-voter-approved limited-tax GOs and $3.1 million of voter-approved GOs outstanding. Moody’s rates the limited-tax GOs A1 and the voter-approved GOs Aa3.
