Moody's Investors Service said it has downgraded to A2 from A1 the taxable pension funding bonds, Series 2004, and affirmed the Aa3 issuer rating of Sacramento Metropolitan Fire District, Calif.
Both ratings have stable outlooks. The pension funding bonds (PFBs) are absolute and unconditional obligations of the district payable from any legally available funds.
Affirmation of the Aa3 issuer rating reflects the district's relatively stable ongoing financial operations with satisfactory cash and reserves; large but still pressured property tax base; sound management practices that should ensure adequate levels of reserves and budgetary flexibility in the near term; and very low direct debt burden, balanced by relatively large pension and post-employment benefit liabilities.
The downgrade creates a two-notch rating distinction between the district's PFBs and issuer rating and reflects the less secure pledge supporting pension obligation bonds compared to general obligation bonds.
The district's PFBs are unsecured, absolute and unconditional obligations payable from any legally available funds. This pledge is notably in contrast to the special, unlimited tax general obligation pledge that provides a baseline for our estimate of the district's credit quality.
The A2 PFB rating continues to reflect the atypical bondholder security derived from a pre-default property tax intercept that ensures a set-aside for debt service prior to the property tax apportionment being released by the county treasurer to the district.
This mechanism creates a structural first lien on the district's property tax apportionment whereas a standard pension obligation bond would be payable in direct competition with other operating expenditures.
