Moody's Downgrades Fort Worth Ahead of $165M Deal

ft-worth-stckyrds-wikimedia-357.jpg

DALLAS – Fort Worth, Texas, will take $165 million of bonds to market after Moody's Investors Service lowered the city's rating to Aa2 from Aa1.

The downgrade, which affects about $681 million of outstanding limited tax debt, was attributed to the city's rising pension liability and other fixed costs. The outlook is stable.

"Despite the high pension and fixed cost burden, the stable outlook reflects our expectation that the city will continue to evaluate the funding status of the pension plan to determine a viable way to increase funding and reduce liability over time," analyst James Hobbs wrote in Tuesday's report. "The outlook also reflects expected near-term growth in the tax base as well as in the available reserve position."

The city's General Purpose Refunding and Improvement Bonds are expected to price May 19. Proceeds will fund transportation, service facility, and other projects, as well as refund certain maturities of the city's outstanding debt profile for a projected net present value savings with no extension of the final maturity.

After this deal, the city will have $765.3 million in limited tax debt outstanding, according to Moody's. More than $121 million of the city's outstanding debt is supported by various other revenue streams outside of the general fund.

The city expects modest annual debt issuance over the next several years as the city grows and demand for services expands, Hobbs said. Officials anticipate issuances of $52 million in 2017, $60 million, in 2018 and $37 million in 2019.

Over the last five years the city's taxable value has grown on average 3.9% per year. The fiscal 2016 taxable value of $49.6 billion reflects a 5.5% increase over the previous year.

Top corporate employers include American Airlines Inc., Lockheed Martin Corp., and General Electric Co.

"The city's top ten taxpayers, accounting for a modest 4.45% of the total tax base, highlight the diversity within the local economy," Hobbs wrote.

Fort Worth has several major development projects in the works, including the Trinity River Vision project, the Clearfork mixed-use project, an update to the historic stockyards and the Waterside master-planned development.

Drilling for natural gas in the Barnett Shale formation of North Texas has had much more of direct impact on Fort Worth than to its sister city of Dallas to the east. Producers have drilled 1,000 wells within the city limits of Fort Worth, while Dallas has not allowed those operations.

Fort Worth maintains a Special Revenue Fund made up of specific gas well revenues from city owned land and other government owned property.  The revenue is earmarked for specific purposes.

The city fell short of funding its actuarial defined contribution for its pension plans in 2015 by $10.4 million, Moody's said.

 For fiscal year 2015, about half of the city's general fund revenues came from property taxes, while sales taxes produced 21% and franchise fees made up nearly 9%.

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