LOS ANGELES — Moody's Investors Service upgraded Los Gatos, Calif.'s issuer rating to Aaa from Aa1 and its certificate of participation rating to Aa2 from Aa3, affecting $21.8 million in lease-backed debt.
Los Gatos, an affluent Silicon Valley town, has a population of 31,546 residents and is the corporate headquarters of Netflix.
Moody's cited the town's strong economic prospects for the Aaa issuer rating as well as strong financial management. The town achieved large operating surpluses throughout the recession, which analysts said resulted in robust reserves and liquidity.
The town also recently took actions to lower its moderate debt and pension burdens.
The certificates are secured by the town's covenant to annually budget and appropriate lease payments for the use and occupancy of the leased assets.
The two notch distinction between the COP ratings and the town's issuer rating represents Moody's standard notching for essential, fixed-asset leases relative to a California general obligation or issuer rating.
"The two notches reflects the risk of abatement and the narrower pledge for leases compared to the unlimited property tax pledge securing general obligation bonds," according to Moody's.
Moody's does not assign outlooks to local government credits with this amount of debt outstanding.
The town would have to experience sizable and prolonged deterioration of reserves and/or liquidity, significant and sustained assessed value contractions and significant and sustained deterioration of residential wealth levels for the rating to drop.
The bonds are secured by the town's covenant to budget and appropriate lease payments for the use and occupancy of the town's police administration building, library, public work center, baseball field and three surface parking lots.
