Moody's Investors Service said it has downgraded to A2 from A1 the rating on Nassau County, N.Y.'s $1.4 billion in outstanding general obligation debt and revised the outlook to stable from negative.
The debt is secured by a general obligation pledge as limited by the Property Tax Cap - Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011).
At this time, Moody's has also downgraded to Baa1 from A3 the long-term rating on $13.1 million of the county's Regional Off-Track Betting Corporation's (NROTB) Revenue Bonds.
The downgrade to A2 reflects further weakening of the county's financial position in fiscal 2011 and the expectation that fund balance will continue to decline in fiscal 2012. The rating also incorporates the county's significantly reduced liquidity, weak governance practices, and significant exposure to variable rate debt and interest rate swaps.
Positive factors supporting the A2 rating include: oversight of the county's finances provided by the Nassau County Interim Finance Authority (NIFA, sales tax revenue bonds rated Aa1, stable outlook) which moved to a hard control board on January 26, 2011, a large and wealthy tax base, and a manageable debt position.
The stable outlook reflects the expectation that the county's financial position and liquidity will not deteriorate materially from their currently weak levels.
The NROTB special obligation bonds are secured by payments made directly to the Trustee by Nassau County pursuant to a Support Agreement. The Support Agreement obliges the county to make payments for debt service subject to annual appropriation.
While the Support Agreement provides satisfactory legal protections to bondholders, including a pledge that the county executive will include the appropriation for this purpose in the annual budget each year, the legislature is not legally required to appropriate for this purpose. The Baa1 rating is linked to the county's credit quality, and reflects appropriation risk and non-essentiality of the financed asset.
