Moody’s Investors Service lowered Monticello, Minn.’s rating due to the city’s declining financial position due in part to its support of its telecommunications utility.

The agency lowered the city’s general obligation unlimited-tax rating on $30 million of debt two levels to A2 from Aa3 and its $4 million lease revenue debt to A3 from A1.

Moody’s noted that the city is expected to default on its unrated telecommunications enterprise bonds issued in 2008 following termination of sinking-fund payments from supplemental city sources. The telecommunications enterprise is not generating sufficient new revenue pledged to cover debt service.

While Monticello did not pledge its general obligation or annual appropriation backing to secure the debt, or other of its general revenues, “the city elected to provide financial support to the utility, which has diminished the city’s financial position to some degree, as detailed below,” Moody’s analysts wrote.

The city issued $26.4 million of bonds to fund the installation of a fiber-optic broadband communications network with Internet, cable television and telephone services. The city won voter approval to fund the system with a bond issue in September 2007.

Moody’s said the downgrade reflects the city’s diminished financial position due in part to its multi-year support of the telecomm enterprise. Financial reserves remain adequate and Monticello has a moderately-sized tax base with a nuclear plant comprising 35% of assessed valuation. It has an above-average debt burden, with debt service comprising a sizeable proportion of operating expenditures.

The city benefits economically from its close proximity to the Twin Cities.

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