Moody’s Investors Service downgraded Reno, Nev. general obligation limited tax bonds to A1 from Aa3 Friday.
The outlook is now stable.
The downgrade comes in front of the city’s plans to refund approximately $65 million in bonds on June 17.
The bonds, Moody’s said, are to be issued in three series: Series 2013A, $33.9 million in GOLT capital improvement refunding bonds; Series 2013B, $28.5 million in GOLT medium-term various purpose bonds; and Series 2013C, $2.2 million in GOLT building refunding bonds.
Moody’s also downgraded $50.9 million in previously issued GOLT bonds, $23.5 million in GOLT/Revenue bonds, $5.2 million in GOLT medium term bonds, and $9.6 million of assessment bonds backed by the city’s GOLT pledge. The bonds are secured by the full faith and credit of the city within the constitutional and statutory limitations of the city’s operating levy. GOLT/Revenue bonds are additionally secured by a pledge of net revenues from various city enterprise systems.
The downgrade to A1 reflects a still weak financial position compared to similarly sized cities nationally featuring chronically low general fund reserve levels and an above average reliance on economically sensitive revenues, according to Moody’s analysts. The revision of the outlook to stable from negative reflects Moody’s analysts view the city will continue its efforts to improve reserve levels albeit at a slow pace and also takes into account the city’s large economy that is in the beginning stages of recovery, according to the report.
Strengths were listed as: long-term economic growth prospects aided by an educated workforce, affordable cost of living and low business costs.
The challenges are low reserve levels combined with an above-average exposure to economically-sensitive revenues and a modest amount of variable rate debt.
Sustained long-term economic growth and diversification combined with long-term improvement in wealth measures and a formal commitment to higher reserve levels could make the ratings go up, according to the report. Weakened financial performance below budgeted expectations, ongoing budget imbalances with no plan for a return to structural balance and long-term sustained deterioration of the tax base could cause the ratings to go down.
