S&P Global Ratings raised its long-term rating and underlying rating to 'AA+' from 'AA' on Cleveland's limited-tax general obligation (GO) bonds, reflecting an additional first-lien pledge of the city's 2.5% income tax; subordinate-lien income tax bonds, reflecting a junior-lien pledge of the city's income tax receipts subordinated only to the city's GO bonds; and subordinate-lien unrestricted income tax bonds (police and fire pension bonds).
At the same time, S&P assigned their 'AA+' long-term rating to Cleveland's series 2017A subordinate-lien income tax improvement and refunding bonds. The outlook is stable.
"The rating action reflects our view of the city's steady growth in income tax revenue, which provides very strong debt service coverage, as well as its successful passage of an income tax rate increase in November 2016, which should further boost coverage," said S&P Global Ratings credit analyst Benjamin Gallovic.
Cleveland will use the series 2017A bond proceeds to finance various capital improvements and to refund portions of its series 2008 and 2012 subordinate-lien income tax bonds for interest cost savings.
The stable outlook reflects S&P's expectation that Cleveland's income tax collections will remain sufficient as a result of ongoing economic growth and development, and will produce very strong debt service coverage. S&P does not anticipate changing the ratings during the two-year outlook timeframe.