NEW YORK - Moody's Investors Service said it has downgraded the rating to Ba2 from A1 on the city of Le Center, Minn.'s long-term underlying general obligation debt.
The downgrade affects approximately $9.3 million of rated outstanding debt secured by the city's unlimited general obligation tax pledge. The rating outlook is negative.
The downgrade of the general obligation rating to Ba2 from A1 reflects the city's reliance on cash flow borrowing to fund debt service payments due February 2012 and the inability to repay a loan that came due in December of 2011.
As a result, the city requested and received an extension from the bank to delay repayment to June 2012. The city's overall financial flexibility has become severely limited as a result of narrow cash balances and a high total debt burden.
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.
The downgrade also reflects the city's extremely limited tax base that has experienced sharp declines and a significantly weakened financial position that has narrowed as a result of recent structural imbalances.
The city's general obligation debt is secured by an unlimited tax pledge that is not restricted either by rate or amount.