NEW YORK - Moody's Investors Service said it has downgraded the ratings on city of Coralville, Iowa's long-term general obligation unlimited tax rating to A3 from Aa2; annual appropriation general obligation bonds and certificates of participation to Baa2 from A1; and short-term rating on the Series 2010H and Series 2011G bond anticipation notes to MIG 2 from MIG 1.
The city has $63.5 million of outstanding long term general obligation unlimited tax debt;$54.4 million in general obligation outstanding annual appropriation debt; $65.1 million in outstanding certificates of participation; and $10.6 million in outstanding short term BANs backed by the city's general obligation pledge. The outlook remains negative.
The downgrade to the A3 rating on the city's general obligation unlimited tax debt reflects the underperformance of the city-owned hotel, which has not met its original cash flow projections, leading to reliance on the city's highly-leveraged mall tax increment fund for debt service payments.
The rating additionally reflects the city's markedly elevated debt burden; increase in short-term debt requiring market access for refinancing; and limited liquidity across governmental funds due to cash flowing of capital and economic development projects. Finally, the rating incorporates the city's strong economy with above average socioeconomic indices and ongoing growth in property valuations.
The Baa2 rating on the annual appropriation general obligation bonds is notched twice off the city's A3 general obligation rating, reflecting the risk of non-appropriation as well as the lack of pledged assets and non-essential nature of the financed projects.
The rating on the annual appropriation bonds additionally incorporates the reputational risk that the city would occur if it did not appropriate to pay the bonds in any year, a factor Moody’s believe is especially critical to management given the city's frequent borrowings that require regular access to the capital markets.
The Baa2 rating on the outstanding certificates of participation (COPs) (Series 2005, Series 2011F, Series 2011K) and lease revenue bonds (Series 2006) is also notched twice off the city's general obligation rating, reflecting the risk of non-appropriation and non-essential nature of the financed projects (golf course improvements; a hotel and conference center; performing arts center; and commercial office space).
The MIG 2 rating reflects the need for the city to access the capital markets in order to redeem its short-term notes and bank loans, and Moody’s expectation that the city will continue to experience satisfactory market access. Also incorporated into the MIG 2 rating is the city's long-term general obligation credit quality.
The negative outlook reflects the risk posed by the city-owned hotel, which has limited cash reserves for operations and for furniture, fixtures and equipment replacement, as well as moderately escalating debt service payments. The outlook additionally incorporates the expectation that the city may further leverage its tax base and tax increment districts given a lack of policies regarding debt management and debt issuance.
