Moody's Investors Service said it downgraded to A3 from A1 the city of Bristol, Va.'s underlying rating and to A1 from Aa2 the enhanced rating on $54.9 million in outstanding parity debt.
Concurrently, Moody's has assigned an A3 underlying rating and an A1 enhanced rating to the city's $16.9 million taxable general obligation public improvement refunding bonds, series 2014. The bonds are secured by the city's general obligation, unlimited tax pledge.
The outlook has been revised to negative.
Proceeds from the current issue will refund the Series 2006B, Series 2006C, Series 2007A, Series 2007C, Series 2009, Series 2010, Series 2012A, and Series 2012B bonds for an estimated net present value loss of $2.2 million, or -14.4% of refunded principal. The city is extending the maturity of these bonds by 16 years (2027 to 2043) to produce cash flow savings, averaging $2.3 million between fiscal 2015 and fiscal 2019, to reduce pressure on the city's tax anticipation note borrowing and provide additional financial flexibility.
The downgrade of the city's underlying rating to A3 reflects the sizable increase in the city's debt burden due to the issuance of capital notes to help fund the initial costs associated with a retail-related economic development project known as The Falls.
This growth in the debt burden limits the city's financial flexibility, which is currently adequate, but expected to decline again slightly in fiscal 2014. The rating also reflects a moderately-sized tax base with below-average wealth levels.
The downgrade of the city's enhanced rating to A1 reflects the relationship of the credit enhancement with the city's underlying credit quality.
The rating also reflects the benefit of the post-default Virginia Localities Intercept Program, authorized by Section 15.2-2659 of the Code of Virginia, which directs the commonwealth's comptroller to cure any general obligation payment delinquency by appropriating all necessary future payments of state aid due the locality.
Although the intercept takes effect after a default has occurred, Moody's believes that the program's sound mechanics and the ample liquidity of the Aaa-rated Commonwealth significantly increase the likelihood of recovery should a scheduled debt service payment be missed.
The city's current state aid allocation is over 1.5 times the maximum annual debt service payments due on all general obligation debt. Also, the city will pay its debt service by a paying agent, who will promptly notify the commonwealth if there is a default.
