DALLAS - The Austin suburb of Pflugerville, Texas, called off a $30 million bond proposal after Moody's Investors Service downgraded the city's debt to A1 from Aa2 on Feb. 18.
Moody's analysts cited Pflugerville's $23.5 million loan guarantee for a privately operated water park as a key factor in the downgrade.
"The downgrade to A1 reflects unusual and additional risk to the city from its guarantee of a $23.5 million loan for a non-essential government service and the loan's ascending repayment structure which contains a bullet maturity in excess of $20 million," Moody's lead analyst James Hobbs wrote.
The proposed $30 million bond proposal that had been expected to go to voters May 10 was not for the water park. Proceeds from the bonds were earmarked for traditional roads and parks.
However, after the downgrade, the city council voted in a specially called meeting Feb. 18 to defer the bond election.
City manager Brandon Wade told the council that the city's credit ratings needed to be clarified before seeking more bond authority, even though Standard & Poor's raised the city's rating one notch to AA from AA-minus the same day based on its new criteria.
The Moody's downgrade came as the city was preparing to issue $5.6 million of certificates of obligation. The city of 53,662 has about $159 million of debt outstanding, according to Moody's.
The Hawaiian Falls Water Park that carries the city's loan guarantee is expected to open at the end of May.
The Pflugerville Development Corporation acquired the 23-acre tract of land for the project that will be privately operated under a 30-year lease with two 10-year options to renew.
While Pflugerville officials tout the economic impact aspects of the project, Moody's raised questions about the city's ability to handle the debt payments if the project fails.
The loan agreement states the city will act as a guarantor on a $23.5 million bank loan between the CDC and Capital One, with lease payments paying back the loan. The city has also pledged a first lien assignment and sole pledge of sales tax revenues levied, collected or eligible to be levied or collected by the CDC.
"Given an operating fund balance of $10.6 million at fiscal year-end 2012, or 50% of the bullet maturity due in 2020, we believe the loan is an outsized risk relative to the city's current resources," Hobbs wrote. "Furthermore, this additional risk is only compounded by a bullet maturity, which assumes unimpeded capital market access at a future date to refinance the loan."
