Moody's Drops Montgomery, Ala., Two Notches

BRADENTON, Fla. — Citing a materially weakened financial position in Alabama's capital city, Moody's Investors Service dropped Montgomery's issuer and general obligation limited tax ratings two notches to A1 from Aa2.

The downgrade affects $265 million of rated general obligation limited tax debt. Moody's assigned a negative outlook to both ratings Oct. 7.

The city's continued structural fiscal imbalance has drained cash and reserves in multiple funds, according to analyst Moses Kopmar.

"The city has proven reluctant to enact the expenditure reductions necessary to preserve its finances, the result of which is a very weak balance sheet that leaves the city poorly positioned to contend with any downturn in the economy or additional financial pressure," Kopmar said.

While the city has initiated recent reforms it is uncertain if it will stabilize operations in enterprise and internal service funds, which have been sources of substantial encroachment on the general fund, said Moody's. The negative outlook reflects the expectation that the citywide structural imbalance will continue in the near-term.

Earlier this year, the city refunded three series of warrants placing $8.5 million in cash proceeds, including $1.5 million from the release of debt service reserves, into general fund reserves. However, the fiscal 2014 general fund budget remains structurally imbalanced, said Kopmar.

Standard & Poor's rates the city's GO bonds AA-plus with a stable outlook.

For reprint and licensing requests for this article, click here.
Alabama
MORE FROM BOND BUYER