Nevada's rating outlook dropped to negative by Moody's

A hand-washing station at preview Monday of the re-opening of the Bellagio casino in Las Vegas. The coronavirus has undercut Nevada's tourism-dominated economy.
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Moody's Investors Service revised the outlook on Nevada's Aa1 rating to negative from stable Tuesday, citing the impact of the coronavirus crisis.

The action affects $1.075 billion in bonds: $1 billion of Aa1-rated general obligation bonds and $75 million of lease revenue certificates of participation, rated Aa2.

“The negative outlook on the GO bonds and COPs reflects the severe economic and financial impact of the coronavirus on Nevada's tourism-based economy,” Moody’s wrote. “The need to reduce capacity at casinos when they reopen coupled with the nationwide decline in consumer income caused by job losses will lead to budgetary strain through the end of fiscal 2021.”

Fitch Ratings revised its outlook on the state’s bonds to negative three weeks ago.

Moody's Tuesday maintained the stable outlook on the state’s $704 million in highway revenue bonds and affirmed their Aa2 rating.

“The stable outlook on the highway revenue bonds reflects historically healthy debt service coverage by pledged revenue,” Moody’s wrote. “Highway revenue could decline significantly in the short term and remain satisfactory to repay debt service.”

While the state has diversified its economy in the Reno-Tahoe area with the addition of a Tesla battery factory and Switch, a $1 billion high-tech data center, it remains dependent on hospitality, tourism and gambling in the Las Vegas region, Fitch analysts wrote.

Because of that, the state’s economy has experienced a more significant hit to revenues than other states, according to Fitch.

"Concentrated in the Las Vegas/Clark County area, the state economy remains more heavily weighted in gaming and entertainment than the nation, with leisure and hospitality generating 17% of personal income in 2019 versus 4.8% in the U.S. as a whole," Fitch wrote.

The state will use its stabilization reserves to help cover its budget gaps, which will leave little buffer for unanticipated revenue shortfalls beyond fiscal 2021, Moody’s wrote.

Nevada pledges its full faith and credit to state GO bonds, and also levies a property tax to pay GO debt service.

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