Moody's Investors Service said it has downgraded to Baa1 from A3 the ratings on the city of Madras, Ore.'s full faith and credit obligations outstanding in the amount of $14.8 million, including the current offering.

At this time, the city's issuer rating is also downgraded to A3 from A2.

The obligations are secured by its full faith and credit pledge of non-restricted resources, and debt service payments are not subject to appropriation. Proceeds will repay outstanding loans of the city's wastewater enterprise, and the city intends to pay debt service with resources of the enterprise.

The Baa1 rating primarily reflects the city's full faith and credit pledge and general credit characteristics that include a small and rural tax base facing ongoing declines, healthy general fund reserves, and an outsized debt burden.

The downgrade of the city's ratings reflects that debt service for the current financing are to be funded by the city's wastewater enterprise (not rated) that demonstrates historically weak performance with insufficient net revenues to self-support annual debt service and reliance on available liquidity to fund debt service over the near-term.

Further, the gross potential debt service burden on the general fund averages a substantial 21.7% of fiscal 2012 revenues over the next five years, including the impact of the current offering.

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