CHICAGO - Davenport, Iowa received an upgrade from one agency and a downgrade from another, landing its rating squarely in the low double-A category.
Standard & Poor's raised its general obligation rating by two notches to AA-minus in recognition of its improving liquidity and the agency's revised GO criteria released last year. Moody's Investors Service downgraded it rating one level to Aa3.
The reviews came ahead of the city's sale the week of Feb. 10 of $23 million corporate purpose new money bonds to fund various infrastructure projects and $12 million of advance refunding bonds for savings. Post-sale, the city will have $210 million of rated GOs outstanding.
"The higher rating also reflects an improvement of the city's liquidity position in fiscal 2013," said Standard & Poor's analyst Blake Yocom, "and the removal of potential enterprise risk, in our view."
Standard & Poor's noted that at the time of its last review, Davenport was negotiating the purchase of the Rhythm City Riverboat Casino which would resulted in the city borrowing an estimated $46 million to $50 million by issuing bonds. Management has informed rating agencies that it's dropped the negotiations and the casino will now be purchased by a private entity, eliminating any enterprise risk and additional debt burden to the city.
Both rating agencies had previously expressed concerns about the potential impact of the city's efforts to get into the gambling business due both to the prospects of adding debt and the operational risks it posed.
The Moody's downgrade followed the agency's adoption of new government general obligation methodology.
The downgrade of the city's GO rating to Aa3 reflects the city's ongoing challenged financial position, with limited reserves and liquidity across all city funds, as well as the city's above average debt and pension burden, Moody's wrote.
The Aa3 rating reflects the city's large and stable tax base located in the Quad Cities region of eastern Iowa and its favorable flexibility to increase uncapped levies for employee insurance and pension costs.
