After trying to attain gilt-edged ratings for more than a decade, Florida finally convinced the last holdout, landing an upgrade to Aaa from Moody's Investors Service.
Moody’s late Thursday raised the state’s general obligation bond rating from Aa1, making it the third rating agency to assign its highest rating to the Sunshine State’s GOs.
The outlook is stable.
Florida has been rated AAA by S&P Global Ratings since 2005, and AAA by Fitch Ratings since 2010.
Ben Watkins, director of Florida's Division of Bond Finance, said he believes that adding Moody’s Aaa rating to more than $12 billion of outstanding GO bonds backed by the state’s full faith and credit will save the state money when new and refunding bonds are issued.
“I would expect the market to recognize the improvement in the state’s finances and the strength of our economy,” Watkins said. “It helps now, for existing bondholders, and it also positions us well for future new money issuance to have triple-triple A ratings.”
Florida will price $254 million of new money right of way and bridge construction bonds the week of June 25, the first time the state will issue debt backed by its full faith and credit carrying triple-A ratings from Fitch, Moody’s and S&P. The exact date of the sale was not immediately available.
“The GO upgrade reflects a sustained trend of improvement in Florida's economy and finances, low state debt and pension ratios, and reduced near-term liability risks via the state-run insurance companies,” said Moody’s Vice President Genevieve Nolan. “Florida's economy is performing strongly in terms of job growth, and long-term growth prospects are favorable despite the challenges posed by an aging population base.”
The state’s finances are characterized by healthy reserves and historically strong governance practices and policies, Nolan said, adding, “The state has also maintained consistently low debt and pension liabilities that compare well with other Aaa-rated states.”
The upgrade by Moody’s followed the state's annual presentation to the rating agencies in May.
Watkins announced Friday that his division would start posting the presentation on its website, a move that he said was prompted by inquiries from major fund groups and institutional investors who requested access to the same information that rating agencies receive.
“There’s over $12 billion of debt that investors are getting the benefit of the [Moody’s] upgrade, which creates a lot of goodwill,” he said. “The value of their bonds just went up.”
Watkins said many things factored into the upgrade, including the state paying down more than $8 billion in direct debt and generating more than $3 billion in debt-service savings through refundings since 2010.
Florida also reduced a $3.5 billion balance-sheet liability by repaying the federal government for loans taken out to pay unemployment compensation claims amid the recession in 2009 and 2010. Today, he said, the state’s unemployment compensation trust fund has a $3.5 billion surplus.
The state’s high pension funded ratio of 85% and favorable financial positions of the two state-rung two property insurers – Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund – also helped support the higher rating, he said.
Obtaining Moody’s highest rating “is a clear indicator of the strength of Florida’s economy and will save taxpayers money in future state interest payments,” said Gov. Rick Scott, who is termed out of office this year and is seeking the Republican nomination for the U.S. Senate.
Scott said he has concentrated on paying down the state’s debt, adding 1.5 million jobs, reducing the unemployment rate and enacting tax cuts.
“When I became governor in 2011, Florida’s economy was in terrible shape,” Scott said Friday. “Today’s rating from Moody’s demonstrates the success of Florida’s economic turnaround.”
Florida had $22.7 billion of direct debt outstanding as of June 30, 2017, a $1.4 billion decrease from the prior fiscal year, according to the state’s Debt Affordability Study released in December.
Moody’s also upgraded Florida’s Department of Management Services facilities pool revenue bonds and certificates of participation ratings to Aa1 from Aa2, the Department of Children and Families COP rating to Aa2 from Aa3, and the State Board of Education's lottery revenue bond rating to Aa3 from A1.
Watkins, who has directed financings for Florida since 1995, said obtaining the state’s third triple-A rating has been a long time in coming.
“Now we’ve got a full house,” he said. “I like the hand.”