Moody’s Investors Service downgraded City of Industry, Calif., sales tax revenue bonds to A1 from Aa2 Monday.
The rating was placed under review for a possible downgrade in March in conjunction with the publication of a new Moody’s methodology for U.S. municipal bonds backed by special tax revenues.
“A key indicator of weakening credit quality is the current debt-service coverage ratio, which is significantly lower than in the past when it had reached as high as 2.2 times,” Moody’s said in a release announcing the two-notch downgrade.
Analyts said the sales taxes that back the bonds have also been volatile during the recent economic downturn.
The outlook on the rating is stable.
Industry’s revenue bond credit still gains strength from its sales tax pledge, rising sales tax revenues and high cash-funded reserves.
“The city’s overall financial health with sizable reserves, which are available but not pledged to debt service, also figure favorably in the rating,” Moody’s said.