Le Center, Minn.’s rating sunk further into junk bond territory following a downgrade citing fiscal woes that include cash flow borrowing to cover debt service. Moody’s lowered the city’s rating to B1 from Ba2 and assigned a negative outlook to its $7.3 million of rated general obligation debt. The city has another $5 million of GOs not rated by the agency.

The rating reflects the city’s heavy reliance on cash flow borrowing from a local bank to fund ongoing operations, including its GO debt service; limited financial flexibility; and narrow cash balances following years of aggressive budgeting assumptions and annual operating deficits, Moody’s wrote.

The city’s small and limited tax base has experienced significant valuation declines and it has a high debt burden.

“The negative outlook reflects our view regarding the city’s preparedness to pay GO debt service on time,” according to Moody’s analysts. The city lost its investment-grade rating from Moody’s in February 2012.

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