NEW YORK - Moody's Investors Service said it has downgraded to Baa2 from A3, the rating on the city of Coralville, Iowa's annual appropriation urban renewal tax increment revenue bonds, Series 2007C.

The rating affects $34 million of outstanding debt. The outlook is negative.

The bonds are secured by a pledge of tax increment financing (TIF) revenues from the city's Mall/Highway 6 Urban Renewal Area, subject to annual appropriation.

The downgrade reflects the heavily-leveraged nature of the Mall/Highway 6 Urban Renewal Area, which supports general obligation bond obligations and other contractually obligated rebate agreements, in addition to the TIF bonds.

The downgrade additionally reflects the risk of non-appropriation, which allows the city to prioritize other obligations above the TIF bonds, though officials have indicated plans to continue to appropriate for all obligations.

The rating additionally incorporates strong valuation growth in the relatively large project area; satisfactory debt service coverage on TIF bonds; a cash-funded debt service reserve fund; and the passive nature of the tax increment revenue stream.

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