Moody's Investors Service said it has downgraded to Aa3 from Aa2 the outstanding general obligation limited tax debt of the city of Middletown, Ohio.

Concurrently, Moody's assigned a Aa3 rating to the city's $5.9 million various purpose refunding bonds, series 2013 (general obligation -- limited tax). Post-sale, the city will have $39.0 million in general obligation limited tax debt outstanding.

The Series 2013 bonds are secured by the city's general obligation limited tax (GOLT) pledge which is subject to the state-imposed 10-milllimitation.

Proceeds from the Series 2013 bonds will finance various capital improvements throughout the city.

The lack of distinction between unlimited and limited tax ratings is due to the state requirement that Ohio cities use all available revenues, including available property tax millage currently assigned to operations for the city or overlapping entities under the ten-mill limitation statutory code, for the payment of debt service prior to any other uses.

The downgrade to Aa3 incorporates a multi-year trend of significant tax base depreciation and a weakened financial profile following multiple years of operational imbalance and use of general fund reserves.

The rating also incorporates a strong financial management team; still healthy reserve levels; below average income indices; and above average adjusted net pension liability.

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