Milwaukee returns to market with mix of notes and bonds

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CHICAGO – Milwaukee takes competitive bids on about $280 million of debt Wednesday to fund long-term capital projects and manage short-term cash flow needs.

The sale being conducted by Comptroller Martin Matson’s office offers $110 million of revenue anticipation notes, $134 million of general obligation promissory notes, $31 million of GO bonds, $5.5 million of taxable promissory notes, and $1.6 million of taxable GO bonds.

The revenue notes smooth out the city’s cash flow needs until its portion of state-shared revenue is received late in the year. The RANs are payable from state aid payments and all other general fund revenues due to the city and included in the budget for the current year that are not received or pledged elsewhere.

The remainder funds capital projects and a portion of the proceeds will also refund outstanding credit lines and other debt for savings.

PFM Financial Advisors LLC is advising the city. Katten Muchin Rosenman LLP and Hurtado Zimmerman SC are bond counsel.

Ahead of the sale, Fitch Ratings and S&P Global Ratings affirmed the city’s top short-term ratings and AA long term GO ratings. Fitch assigns a stable outlook and S&P’s outlook is negative.

"The outlook on the city's long-term debt is negative, reflecting our view that there is a one-in-three chance that we could lower the city's rating within the next two years as a result of weaker budgetary flexibility," said S&P analyst David Smith.

While the city has made significant adjustments to achieve better operational performance, draw downs in the last two years "have significantly reduced its available fund balance as compared to earlier years,” S&P said.

The GO rating reflects “the city's stable financial performance over time, exceptionally strong gap-closing capacity and moderate long-term liabilities. A demonstrated capacity to cut spending, low expected revenue volatility and sufficient financial cushion offset Fitch's expectation for limited revenue growth,” Fitch wrote.

The state’s largest city is home to about 600,000 people. It has experienced stagnant growth in its two key revenue sources: state aid, which makes up about 40% of its general fund, and property taxes, which account for 30%. It has limited power to raise revenue due to state caps.

On March 12, Moody’s Investors Service dropped the city’s rating to A1 from Aa3.

“The A1 GO rating reflects the city's escalating pension obligations that are somewhat masked by aggressive actuarial assumptions,” Moody’s wrote. “Other credit challenges include weak resident income indices, recent declines in operating reserves and an elevated debt burden.”

Moody's downgrade didn't sit well with the city's comptroller, who slammed it as unfair and argued that the city had seen no material credit profile changes since its last review. The city has not asked Moody’s to rate its GOs since 2016.

The comptroller’s office said it did not see its borrowing cost rise after the last Moody’s downgrade so it’s hoping the new one doesn’t have an impact.
One factor the city acknowledged did deteriorate is its reserves, which have been drawn by about $20 million annually in recent years, but officials insist reserves remain at planned levels.

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Primary bond market Ratings City of Milwaukee, WI Wisconsin