Moody’s Investors Service this week revised its outlook on Kansas City’s general obligation credit to negative from stable as the city prepares to enter the market with several new-money and refunding deals.
The revision came as the agency affirmed the city’s Aa3 GO rating on a $40 million issue selling next month. The city has $310 million of GOs, including the upcoming issue. Proceeds of the new deal will finance various infrastructure and zoo improvements. In addition to GOs, the city has $1.2 billion of outstanding lease and appropriation-backed debt.
Moody’s attributed the negative outlook to the city’s exposure to interest rate risk — $550 million, or 37% of its debt portfolio, consists of insured variable-rate demand obligation bonds. The city also faces decreasing liquidity due to declining reserves amid a budget deficit. The majority of the debt is insured by Ambac Assurance Corp., with a smaller piece carrying insurance from MBIA Insurance Corp.
The city has experienced one failed remarketing of its Series 2005C issued through the Kansas City Industrial Development Authority. The liquidity facility provider, Dexia Credit Local, currently holds $80.6 million of the Series 2005C bonds which were purchased Feb. 24, 2008.
Kansas City has 180 days from purchase before semiannual principal payments are required. Its interest rate on the bank bonds will increase by 100 basis points over the base rate 90 days following the purchase, and by another 100 basis points over the base rate on the 181st day after purchase.
Treasurer Randall Landes has said the city is reviewing its restructuring options. The government has further taken a hit with its swap payments on portions of the $235 million of its floating-rate debt that has been swapped to a synthetic fixed rate.
“While the city is pursuing a number of options to limit this risk, many factors remain beyond their control and therefore city management’s ability to meet these challenges will be tested in the coming months,” Moody’s wrote.
Kansas City’s four pension plans have funded ratios ranging from 74.4% to 93% and a combined unfunded liability of $274 million. Officials have not yet released their other post-employment benefits accrued liability.
In addition to the GOs, the city will sell $30 million of new-money and refunding special obligation bonds, $217 million of new-money and refunding water bonds, and another $40 million of appropriation-backed bonds for a development project in the coming months.
Fitch Ratings rates Kansas City’s GOs AAA with a negative outlook and Standard & Poor’s rates them AA.