Hillview, Ky., GOs Downgraded, Jury Award Cited: S&P

BRADENTON, Fla. - Standard & Poor's lowered its ratings on Hillview, Ky.'s 2010 general obligation refunding bonds to A-minus from A in part because the city of 7,700 residents is appealing an $11.4 million jury award.

S&P said its negative outlook on the bonds reflects its opinion of the pending appeal, "which could result in a large contingent liability of approximately five times the city's normal operating budget."

The rating downgrade also was due to a decrease in the city's general fund reserve, and the application of the agency's recently revised GO criteria, according to a Dec. 5 ratings report.

The city sold $1.39 million of GO bonds in 2010 rated only by S&P. It is not clear how much other debt the city has because no continuing disclosure documents, such as annual audits, have been posted on the Municipal Securities Rulemaking Board's EMMA filing system.

"We have supplied copies of the audit each year to everyone who requests them," City Clerk Karen Gathof said in an email. "As for the judgment, we had no prior knowledge it would ever be an amount of such magnitude. We are in the process of appealing this judgment and it is far from being over."

The city's contingent liability for $11.4 million stems from a breach of contract lawsuit filed in 2005 by the owners of Truck America Training who had a lease-purchase contract for 40 acres of land owned by the city.

The suit was filed after the city refused to honor the contract and sell the land, according to court documents. The jury award was handed down in August 2012.

"The case is currently before the Kentucky Court of Appeals," said attorney Andy Beshear with Stites & Harbison PLLC, which is representing Truck America's owners. "The Court of Appeals has suggested the appeal will be considered in January, though large caseloads can sometimes cause understandable delays."

Standard & Poor's said the city estimated that the legal dispute would "likely be held up in court for several years with the outcome uncertain." The suit will be incorporated into S&P's analysis going forward.

Hillview is about 16 miles south of Louisville.

The city currently has "adequate" budget flexibility, and closed fiscal 2013 with a general fund balance of about $284,000, or 13% of expenditures, according to S&P.

"The fiscal 2014 budget, however, calls for drawdowns in the general fund that, if fully realized, will significantly weaken budgetary flexibility, leaving a year-end general fund balance of less than $15,000, or about 0.5% of expenditures," said a report by analyst Scott Nees.

The budget projects deficits of 8% of expenditures in the general fund and 8.1% of expenditures in total governmental funds, which "indicates Hillview's budgetary performance will deteriorate in the current fiscal year," Nees said.

"The outlook will remain negative until we have a clearer indication of the appeal's likely outcome and its effect on the city's budgetary performance, flexibility, and liquidity," he said. "We could revise the outlook to stable if the appeal proves successful for the city."

For reprint and licensing requests for this article, click here.
Bankruptcy Kentucky
MORE FROM BOND BUYER