NEW YORK - Moody's Investors Service has downgraded to A1 from Aa2 the rating to on City of Industry, Calif., taxable sales tax revenue bonds.
The bonds are a limited obligation of the city and are secured by a pledge of sales and use tax revenues.
The rating was placed under review for a possible downgrade on March 27, in conjunction with the publication of a new methodology for U.S. municipal bonds backed by special tax revenues.
The downgrade reflects the weakening of several credit factors, some of which are highlighted by Moody's new methodology for US municipal bonds backed by special tax revenues.
A key indicator of weakening credit quality is the current debt service coverage ratio, which is significantly lower than in the past when it had reached as high as 2.2x.
Other factors include the additional bonds test of 1.25x, in conjunction with the current debt service coverage level of 1.36x and the high degree of volatility exhibited by the pledged revenues during the recent economic downturn.
The rating continues to benefit from the breadth of the sales tax pledge, the recent improvement in sales tax receipts and the cash funded reserve funds sized at maximum annual debt service.
The city's overall financial health with sizable reserves, which are available but not pledged to debt service also figure favorably in the rating.