Moody’s Investors Service downgraded Monday afternoon $130 million in capital improvement revenue bonds issued by Reno, Nevada three notches to Baa2 from A3 based on declines in the city’s hotel tax revenues.
The rating agency also assigned a negative outlook to the bonds.
The downgrade impacted three series of the city’s capital improvement bonds: 2002 series, refunding series 2005A and Series 2005 B and C, taxable bonds.
Moody’s cited low coverage of annual debt service following a trend of significant declines in pledged revenues as justification for the downgrade in its report.
The city’s room tax revenues backing the bonds dropped from $6.2 million in 2007 to $4.8 million in 2011, according to the city’s annual report posted on the Municipal Securities Rulemaking Board’s EMMA website.
The rating incorporates exposure to variable rate debt and a somewhat narrow pledge of room taxes buttressed by a portion of city-wide consolidated taxes, the report said.
Analysts also cited a somewhat weak debt and legal structure that includes escalating debt service and a debt service reserve requirement satisfied by a FGIC surety (ratings withdrawn).
The negative outlook reflects analyst’s expectations that pledged revenues will remain challenged and coverage will remain weak over the medium-term, according to the report.
The city’s strengths were that the city’s taxable base includes the majority of the region’s largest hotels and tourist attractions and that pledged revenues have experienced some recovery. But analysts also cited as a challenged the area’s expected slow, uneven economic recovery.