Moody's Investors Service said it has downgraded to Baa1 from A2 the rating on $65.7 million of general obligation debt of the city of Niagara Falls, N.Y., and placed the rating under review for further downgrade.

The city's debt is secured by a general obligation pledge as limited by the Property Tax Cap - Legislation (Chapter 97(Part A) of the Laws of the State of New York, 2011).

The downgrade reflects significant declines in the city's general fund liquidity and reserve levels beginning in fiscal 2010, due primarily to budgeted casino revenues that have not been remitted to the city.

The rating also incorporates the city's high unemployment, depressed wealth levels, an elevated debt burden, and a moderately-sized tax base.

Additionally, the rating reflects the uncertainty surrounding the outcome of a dispute with the Seneca Nation and the state over the casino revenue, and the ongoing pressure that the lack of the revenues will continue to place on the city's finances during the dispute. An unfavorable resolution of the dispute could result in additional credit weakness and downgrade.

The rating has been placed under review for further downgrade pending receipt of updated financial information concerning projected cash flows for fiscal 2013 in order to determine the magnitude of additional operational and liquidity pressures.

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