Moody’s Investors Service has stripped Le Center, Minn., of its investment-grade rating and warned of further negative action due to the city’s reliance on cash-flow borrowing to cover a February debt-service payment and its inability to repay a loan that came due in December.
Moody’s downgraded the city to Ba2 from A1 and assigned a negative outlook. The action affects $9.3 million of debt.
The city did win an extension to June to repay the bank loan that came due in December. “The city’s overall financial flexibility has become severely limited as a result of narrow cash balances and a high total debt burden,” Moody’s said.
The rating agency also had critical words for city management practices.
“Management additionally exhibits a lack of internal controls, pooling cash across multiple funds, which leads to imprecise cash management, and aggressively budgeting for certain key revenues,” analysts wrote. Strengths include continued population growth and the ability to increase its tax levy as needed.