ATLANTA — Atlanta will issue $36.8 million of general obligation bonds today against a background of some weakening in the city’s financial position.
The deal will be sold through negotiation with Jackson Securities as the book-runner. It is being insured by Financial Security Assurance Inc. Alston & Bird LLP and the Law Office of Kenneth Brown are co-bond counsel.
Atlanta has underlying ratings of Aa3 with a stable outlook from Moody’s Investors Service and AA-minus from Standard & Poor’s. There is no rating from Fitch Ratings. In rating this deal, Standard & Poor’s changed the outlook to stable from positive.
In the ratings report issued ahead of the deal, Standard & Poor’s analyst John Sugden-Castillo said that the outlook change was based on the fact that the city’s fund balances, while declining, remain healthy.
“The city’s financial position has weakened over the past three fiscal years,” he said. “Higher pension costs, police overtime, and sanitation fund subsidies resulted in a $6.1 million operating deficit for fiscal 2007. In fiscal 2008, the city expects to post another operating fund deficit, further reducing fund balance. Additional pressures are expected in 2009 as the affect of the slowing housing market could translate into lower revenues.”
The city’s rating “reflects its diversified regional economic base that is poised to outpace the national employment growth rate over the next five years and reserve levels that remain healthy,” Sugden-Castillo said. “In addition, Atlanta maintains conservative management practices and moderate debt ratios with manageable general fund-supported capital needs.”
“Management’s ability to address current and future financial pressures associated with increased pension costs, police overtime, subsidies to the sanitation fund, and a declining housing market is important from a credit standpoint,” Sugden-Castillo continued.
And if the city does not cure its financial imbalance over the next few years, downward pressure on the rating could be in store, he said.
One investor considering the deal said the city has a sound financial footing, and that is why his firm is considering this deal. Also of note is that there has not been a lot of the paper from the city during the last few years so that the deal should draw strong interest.
Between 2003 and 2007, Atlanta issued roughly $3.6 billion of debt, according to Thomson Financial. Most of that debt was sold in 2004 when the city sold about $2.4 billion of bonds. There were 14 deals that year.
Bruce Gow, chief operating officer for Jackson Securities, agreed, saying that the city has long been a strong credit. He also noted that because the deal is being insured, there should be an additional attraction from investors considering picking up some of the city’s paper.
This is the first deal Jackson Securities has done for Atlanta since 2006 when the city sold tax allocation bonds.