Moody's Investors Service said it has downgraded the city of Coralville, Iowa's long term GOULT rating to Baa2 from A3 and its general obligation annual appropriation and certificates of participation ratings to Ba1 from Baa2.
Concurrently, Moody's has downgraded the short term rating on Series 2011G Bond Anticipation Notes to MIG 3 from MIG 2.
Post-sale, the city will have outstanding $61.3 million of long term general obligation unlimited tax debt, $55.3 million of annual appropriation general obligation debt, $63.6 million of certificates of participation and $32.7 million of short term debt, in the form of BANs and bank loans.
Concurrent with the above ratings changes, Moody's has downgraded the city's tax increment financing (TIF) revenue debt to Ba1 from Baa2, its sewer enterprise revenue rating to Baa2 (issuer rating) from A3 (issuer rating), and its water enterprise revenue rating to Baa2 from A3.
The Series 2013A bonds are ultimately secured by the city's general obligation unlimited tax pledge. Proceeds of the Series 2013A bonds will be used to finance various capital improvement projects.
The Baa2 GOULT rating reflects the city's markedly elevated debt burden and highly leveraged TIF districts, with only limited financial cushion to shield against future stress. It additionally reflects the city's already substantial contingent liabilities--and its near-term plans that will further increase this exposure-- along with short-term debt that requires market access for refinancing.
The city has a history of issuing debt for non-essential government purposes, including the construction of a hotel, golf course, performing arts center, and brewery, all of which are city-owned. The city has further plans to issue debt to finance non-essential purposes that includes incentive payments to a private company and acquisition of developer-owned retail space.
Finally, the rating incorporates the city's strong regional economy with above average socioeconomic indices and ongoing growth in property valuations.
The Ba1 rating on the city's outstanding certificates of participation and annual appropriation general obligation bonds is notched twice off the city's Baa2 general obligation rating, reflecting the risk of non-appropriation as well as the lack of pledged assets and/or non-essential nature of the financed projects.
These include the above-referenced golf course, hotel and conference center, and performing arts center, as well as commercial office space. The rating additionally incorporates the reputational risk that the city would incur if it did not appropriate to pay the bonds in any year, a factor the rating agency believes is especially critical to management given the city's frequent borrowings that require regular access to the capital markets.
The MIG 3 BAN rating reflects the need for the city to access the capital markets in order to redeem its short-term notes and bank loans, and the expectation that the city will continue to experience market access. Also incorporated into the MIG3 rating is the city's long-term general obligation credit quality.
The negative outlook reflects the expectation that the city will continue to issue debt for economic development projects of a non-essential nature. The outlook additionally incorporates the leveraged nature and narrow liquidity of the city's enterprises and urban renewal areas, which limits the city's ability to respond to unforeseen stressors.
