CHICAGO -Indianapolis lost its AAA issuer credit rating from Standard & Poor's Tuesday because of the rating agency's recent changes to its local general obligation credit criteria.
The new criteria cost Indianapolis two rating notches.
Standard & Poor's lowered the city's issuer credit rating and its direct general obligation and ad-valorem property tax-backed ratings to AA from AAA to reflect its altered criteria, not due to any change in the city's financial condition.
Certificates of participation ratings were knocked down to AA-minus from AA-plus. The city's moral obligation-backed bonds were lowered to A from AA. Some moral obligation-backed bonds backed by Assured Guaranty Municipal Corp. insurance were lowered only one level to AA-minus from AA due to the company's ratings.
The outlook on all the debt is stable. The AA ratings are based on ad-valorem property tax pledges, subject to state circuit-breaker legislation.
The AA-minus COPs rating reflects annual appropriation risk, and the single A rating on standalone moral obligation debt is based on the city's pledge to replenish debt service reserve funds, if needed, subject to council appropriation.
"The AA rating and stable outlook reflect our assessment of Indianapolis' very strong budget flexibility and liquidity," said Standard & Poor analyst John Sauter, "along with its strong management." Another supporting factor is its adequate economy.
The city's challenges include weak budgetary performance, factoring in forecasted deficits for fiscal years 2013 and 2014; and weak debt and contingent liabilities position, mostly reflecting high direct debt. "We do not anticipate any of the positive factors wavering within the two-year outlook period," added Sauter.
Rating improvement is likely contingent on an improved management score and more balanced budgetary performance in the near term.
