Moody's Investors Service said it has downgraded the city of Fresno, Calif.'s issuer rating to Baa1 from A3.
The following lease-backed obligations have also been downgraded one notch, to Ba2: Series 2002, Series 2004 A, B, C; Series 2008 A, C, E, F and Series 2009A.
In addition, Moody's has downgraded to Ba3 the ratings on the city's 2006A convention center bonds, 2002 pension obligation bonds and 2002 judgment obligation bonds. Approximately $300 million of debt is affected by these rating actions.
The outlook on the city's long-term ratings has been revised to stable from negative.
The rating downgrades primarily reflect the persistent weakness of the city's economy, which is further weakening the city's financial profile relative to most other, Moody's-rated California cities. Fresno's labor market is underperforming relative to the state and the nation.
Total employment has been flat in the last year and remains well below the pre-recession peak. Fresno's tax base remains well below its peak as well, while most cities in the state have enjoyed full recovery of their assessed values. The sluggish economy is suppressing revenue growth and hindering the city's financial recovery.
The ratings continue to reflect the city's exceedingly weak balance sheet, with near complete depletion of reserves, and an oversized fixed cost burden, including debt service on the city's lease-backed obligations, pension obligation bonds, and judgment obligation bonds.
These credit weaknesses are partly offset by the city's relatively large assessed valuation, which has recently stabilized and even recorded some growth in fiscal 2014. The city's favorable position as the economic center of the San Joaquin Valley, a well-funded pension system, and the city's moderate post-employment benefit obligation also figure favorably in the city's ratings and the stable rating outlook.
The Baa1 issuer rating represents what the city's GO rating would be it the city had such debt. In California, a local government GO is secured by an unlimited, super-majority voter-approved ad valorem property tax, the proceeds of which are restricted to the payment of GO bond debt service.
The Ba2 ratings on most of the city's lease secured obligations reflect the significantly weaker security of these obligations compared to general obligations. The four notches between Fresno's issuer rating and the ratings on these lease secured obligations reflect the city's exceedingly weak financial position, the well above average burden of these obligations on the city's finances and the continued weakness of the city's economy.
The Ba3 rating on the 2006 convention center bonds reflects the lesser essentiality of the leased assets relative to the leased assets for the obligations rated Ba2. The Ba3 rating on the pension and judgment obligations incorporates the weak credit factors mentioned above and the additional weakness resulting from the absence of assets securing these obligations.
