Moody's Investors Service has downgraded the City of Glendale, Arizona's  ratings as follows: the city's unlimited tax general obligation bond  rating was lowered to Aa3 from Aa2 ($201.7 million of outstanding debt  affected), the senior lien excise tax revenue rating was lowered to A1  from Aa3 ($266.2 million of debt affected, post-refunding, and issued  through the city's Municipal Property Corporation), the second lien excise tax revenue bond rating was lowered to A2 from A1 ($12.3 million  of outstanding debt affected and also issued through the MPC), and the  third lien excise tax revenue bond rating was lowered to A3 from A2  ($199.8 million of outstanding debt affected and issued through the  city's Public Facilities Corporation). The rating review was conducted in  conjunction with the sale of Senior Lien Excise Tax Revenue Refunding  Bonds, Series 2012A in the expected amount of $58.6 million. Moody's also  revised the city's outlook to negative from stable.

The current offering is secured by lease rental payments from the city that are not subject to annual appropriation. The city pledges a senior  lien on excise tax revenues that include unrestricted local sales taxes,  state-shared sales and income taxes, along with various other fees and  charges. Proceeds will refund certain maturities of outstanding parity  debt.

SUMMARY RATINGS RATIONALE

The downgrade primarily reflects the city's strained financial position following a significant payment to the National Hockey League (NHL) for operating losses of the Phoenix Coyotes that led to a significant decline  in general fund reserves in fiscal 2011. The downgrade also reflects the  negative effects of the broad downturn in the region's economy which has  driven declines in the city's economically-sensitive revenue streams and  tax base. The city also has a high debt burden that includes significant  leveraging of excise tax revenues, which are also the general fund's  largest resource.

The negative outlook primarily reflects near-term risk that the city will  be obligated to make additional payments to the NHL in fiscal year 2012  and possibly beyond, which would further stress the city's already  narrowed financial position. The outlook also reflects budgetary  pressures over the near-term that may require politically challenging  revenue raising measures or cuts to city services, along with  expectations for further tax base declines in coming years.

STRENGTHS

- Still large tax base, relative to many similarly-rated peers nationally

- Expenditure reductions implemented by management amid declining revenues

CHALLENGES

- A significantly narrow financial position, relative to peers nationally

- Additional payments to the NHL for the Coyotes' operating losses of up  to $25.0 million if the team does not secure a new owner in the coming  months

- A challenging budget cycle anticipated for fiscal 2013

- Softness in economically-sensitive excise tax revenues that are  significantly leveraged for debt service on excise revenue bonds

Outlook

WHAT COULD MAKE THE RATING GO UP

- Improved general fund reserves to levels more in-line with peers  nationally

- Trend of substantial tax base growth

WHAT COULD MAKE THE RATING GO DOWN

- Continued, significant financial assistance to the Coyotes hockey team  that further strains the city's finances

- Further declines in economically-sensitive revenues or tax base that  exacerbates budgetary challenges

- Increased debt burden, including additional leveraging of the city's  excise tax revenues

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