ALAMEDA, Calif. — Moody’s Investors Service changed its outlook on Nevada’s Aa1 bond rating to negative from stable this week as the state prepared for a $233 million general obligation bond sale.
The deal is tentatively scheduled for the week of Dec. 6, according to Lori Chatwood, Nevada’s deputy treasurer for debt management.
“Everything is market-sensitive, as you know, right now,” she said in a phone interview Wednesday.
Most of the proceeds will be used to refund outstanding debt. Nevada targets 5% in present-value savings in a refunding, Chatwood said, noting that the offering only includes about $40 million in new money.
Moody’s cited the state’s large budget deficit and horrendous economy when it lowered Nevada’s long-term outlook Tuesday.
“The negative outlook reflects the outsized current pressures on the state’s economy and finances relative to others in the rating category,” analysts said.
Moody’s detailed credit concerns that include a very large expected budget gap for the next biennium; uncertainty about how the state will bridge that gap, given that it has already drawn down almost all its reserves; a very weak economy; and uncertainty about the recovery of the state’s casino gambling industry.
The rating remains Moody’s second-highest, with analysts citing the state’s conservative financial management and quick reactions to fiscal problems, low debt ratios, and a relatively well-funded pension system.
Standard & Poor’s and Fitch Ratings had not issued ratings reports on the new issue at press time. Both previously had assigned Nevada AA-plus ratings with a stable outlook.
The state government’s primary revenue sources are its sales and use tax and its gambling tax, all of which have been hit hard by the recession.
The weak job market and soft economy have devastated the residential real estate market in the Las Vegas area, which is home to most of Nevada’s population and economy.
The bond sale will incorporate seven different series, with Barclays Capital managing five limited-tax GO series, and Bank of America Merrill Lynch managing two revolving fund series — one for water pollution control and one for state drinking water. They are also backed by the state’s limited-tax GO pledge.
The preliminary official statement notes that the state faces a two-year general fund shortfall projected at up to $3 billion during the next two-year budget cycle, on revenues of about $5 billion.
That picture is expected to take sharper focus after the state’s Economic Forum issues the official revenue forecast that state officials will use to prepare the next budget.
The report, which was scheduled for release Wednesday, was not available at press time.
Governor-elect Brian Sandoval, a Republican, has promised to balance the budget without any new taxes and without extending temporary tax increases that lawmakers approved in the previous two years.