Moody's Investors Service said it has downgraded to Baa2 from A1 the city of Kent, Wash.'s limited tax general obligation bond rating in conjunction with the anticipated sale of its limited tax general obligation refunding bonds, 2012A and limited tax general obligation bonds, 2012B (taxable), expected to be issued in the aggregate amount of $10.4 million.
At this time, Moody's also downgrades to Baa2 the city's outstanding parity limited tax general obligation debt totaling an additional $62.4 million.
The rating outlook is negative. The current offerings are secured by the full faith and credit of the city within the constitutional and statutory limitations of non-voter approved debt. Proceeds will be used to refundcertain maturities for debt service savings.
The downgrade reflects the city's severely deteriorated financial position and stressed medium-term liquidity, as recurring operating deficits depleted cash and reserve levels across all governmental funds.
Additionally, the city faces an outsize funding shortfall from recent reductions in sales and real estate transfer taxes dedicated to limited tax debt service. The rating is further pressured by the long-term need to honor an unrated parity limited tax contingent loan agreement on sales tax and revenue bonds issued by a struggling city arena enterprise.
The rating also reflects the city's other credit characteristics including a large tax base, stable local economy, and location within the Seattle metropolitan area.
The negative outlook incorporates Moody's expectation that the city's financial flexibility will continue to be challenged as it diverts a substantial portion of future operational cash flows to resolve deficits and internal debts throughout governmental funds.
The outlook also reflects uncertainty regarding the city's ability to implement its six year recovery plan, which includes additional proposed revenue from an approved utility tax increase, seeking new business taxes, a voted levy lift, as well as increased budgetary discipline.
