Standard & Poor's Ratings Services said it lowered its long-term rating on Davenport, Iowa's general obligation bonds to A from AA.
Standard & Poor's revised the outlook to negative.
"The downgrade and outlook revisions reflect our view of the city's continued limited liquidity position, the temporary use of restricted cash and bond proceeds to avoid cash flow borrowing, and general fund reserves that rely on long-term receivables," said Standard & Poor's credit analyst Blake Yocom.
In addition, the agency assigned an A long-term rating to the city's series 2013A general obligation corporate and refunding bonds.
The ratings reflect the city's: anchor of the stable "Quad Cities" area, which includes cities in both Iowa and Illinois; strong market value per capita and a growing tax base; good financial management policies, albeit with a reliance on interfund borrowing; and low overall debt burden.
Partially offsetting the preceding strengths are the city's: depleted cash position in the general, local option sales tax, general debt service, and main enterprise funds for two consecutive years; audited general fund balance, which the agency no longer considers strong given its reliance on long-term receivables; below-average income indicators, which the agency considers adequate; and elevated debt service carrying charge.
Unlimited taxes pursuant to the city's GO pledge secure the bonds. The city plans to refund its series 2003D GO refunding bonds for interest cost savings.
On the Iowa side of the Mississippi River, Davenport is the third-largest city in the state and one of five Illinois and Iowa communities forming the Quad Cities metropolitan area. Davenport's 2010 population of 99,685 accounts for about one-fourth of the total Quad Cities area population.
"The negative outlook reflects the depleted cash position and long-term receivables within the general fund," added Yocom, "and we could take further rating action within the two-year timeframe of the outlook if the city does not show substantial progress in meeting its current time frame of repaying its interfund loans by fiscal 2016."
