DALLAS — Albuquerque took its lofty credit ratings to market Monday in a competitive deal to raise $78.8 million for projects in New Mexico’s largest city.
The package included $70.8 million of Series A general purpose bonds and $8 million of Series B general obligation sewer bonds.
With RBC Capital Markets as financial advisor, the city took bids through Ipreo’s Parity electronic bidding system. Bank of America Merrill Lynch won the deal, according to Thomson Reuters.
Brownstein Hyatt Farber Schreck is bond counsel.
The Series A bonds with 4% coupons reach final maturity in 2024 and the 3% coupon Series B matures in 2025. The city plans to issue $11.5 million of additional short-term debt before June 30.
The bonds are part of $164 million in authorizations voters approved on Oct. 4, 2011. After the current offering, Albuquerque plans to issue the remaining $81 million authorization by 2013.
The bonds priced Monday with ratings of AAA from Standard & Poor’s, Aa1 from Moody’s Investors Service and AA-plus from Fitch Ratings. Only Moody’s has a negative outlook.
The negative outlook reflects the city’s “narrow financial position and reliance on economically sensitive revenues,” wrote Moody’s analyst Keaton Hoppe. “Future rating actions will assess the city’s ability to maintain structural balance and rebuild reserves.”
While acknowledging the city’s recent difficulties, Standard & Poor’s stood by its top rating and stable outlook.
“Although the economic downturn has resulted in lower revenues and reserves over the previous five years, we believe some recent signs of revenue stabilization as well as the city’s strong financial management, multiyear planning and revenue-raising flexibility continue to provide support for the AAA rating,” analyst Sussan Corson wrote in her rating report.
With $345 million of outstanding GO bonds after this issue, Albuquerque has a relatively low GO debt load of 2.7% of appraised value, analysts said.
“The city’s debt profile remains positive, as evidenced by a very rapid GO payout rate, below-average debt levels and modest capital plans,” wrote Fitch analyst Jose Acosta. Albuquerque has an aggressive amortization schedule and expects to pay off more than 90% of its debt in 10 years.
Straddling the Rio Grande and framed by the Sandia Mountains in the high desert of central New Mexico, Albuquerque has ranked as one of the nation’s 10 fastest-growing cities for the past decade. It has a population of 545,852 in a metro area of more than 800,000 residents.
While its growth was less dramatic than the pace of Arizona’s, New Mexico did not experience the catastrophic housing collapse of its neighboring state. Per-capita income in Albuquerque is higher than the state average but 96.7% of the U.S. average, according to Moody’s.
The city’s gross receipts tax revenue declined by 26% between fiscal 2007 and 2010, which included a 0.25% reduction in the GRT tax rate. To ease the impact of the declines, the city managed costs and raised operational revenue sources in fiscal 2010 and 2011 to restore structural budgetary balance.
The City Council sought savings by eliminating 210 vacant jobs and imposing average 2.2% wage reductions, while making one-time transfers from other funds, including the vehicle replacement fund and the risk management fund. Fiscal 2010 measures included moving 2 mills of property tax levy to operations from debt service.
The city can raise its general property tax rate on real property for operations by about 1 mill, within operational property tax revenue growth limits, which could generate $12.8 million of annual revenue, according to Standard & Poor’s. The city can also increase its GRT by 0.25% without an election, which officials estimate could generate an additional $32 million of annual revenue.
“Despite its flexibility to make these revenue adjustments, management indicates there are no plans to raise rates at this time,” according to Standard & Poor’s.
Fiscal 2012 revenues to date are tracking close to budgeted levels, though total estimated revenues are up $2 million compared with the budget. The city has a policy to maintain a reserve equal to at least one-twelfth of appropriations.
Recent changes in state legislation exempted construction and manufacturing processes from the gross receipts tax. The full impact of the change will be phased in over the next five years, and city officials forecast a gross annual loss of $1.6 million in GRT revenues beginning in fiscal 2013. The figure could rise to $8 million per year by fiscal 2017. Albuquerque still projects a net 1% growth on average in the next five years.
The city saw strong support for its GO program last October — 11 GO bond authorizations were on the ballot, and no issue received less than 60% of the vote. Proposals included parks and recreation, the zoo, transportation, library, and other city infrastructure. Albuquerque voters did reject a gross receipts tax revenue bond proposal on the same ballot.
While many residents of New Mexico live below the poverty line, Albuquerque enjoys a relatively stable economy with federal employers such as Kirtland Air Force Base and Sandia National Laboratories. The University of New Mexico and other state institutions also provide a solid financial foundation.
Albuquerque has worked to enhance its image as a high-tech corridor, leveraging assets such as Sandia and other research facilities.
Among the major projects on the drawing board are redevelopment of obsolete downtown railroad facilities and a streetcar system that would embellish the city’s status as a tourism draw.
The city bought the 27.3-acre site known as the Albuquerque Rail Yards in 2007 and has led a study of how the area should be redeveloped. The Atlantic and Pacific Railroad established locomotive repair shops and offices at the site in the 1880s. The Santa Fe Railway was one of Albuquerque’s biggest employers and played a significant role in the development of the city.
The city is now served by New Mexico’s Rail Runner, a commuter line that links Albuquerque to the capital, Santa Fe.
Rail Runner was part of former Gov. Bill Richardson’s bond program known as GRIP, or Governor Richardson’s Investment Program.