BRADENTON, Fla. - Port St. Lucie, Fla.'s recent decision to postpone refinancing city guaranteed bonds issued on behalf of the now-bankrupt firm Digital Domain is a credit negative, according to Moody's Investors Service Feb. 28.
The refinancing would have provided debt service relief over the next five years while the city attempts to sell the Digital Domain building, which it now owns. The sale proceeds would have been used to redeem the refunding bonds.
"The postponement is credit negative because it forgoes valuable budgetary savings at a time when the local economy remains fragile and it makes the city's five-year financial plan increasingly dependent on a successful tax rate increase," said Moody's analyst Moses Kopmar, who added that the reason for the refinancing delay is unclear.
Port St. Lucie sold $18.04 million of taxable bonds and $21.86 million of recovery zone facility bonds in 2010 to build and equip a 150,000-square-foot building for the special-effects company's digital production studio.
Digital Domain was to make lease payments to the city, which in turn would have used the payments for debt service.
On Sept. 11, 2012, Digital Domain filed for Chapter 11 bankruptcy. The city assumed bond payments. About $37 million of the debt is outstanding, according to Moody's.
The bonds are subject to an extraordinary operational redemption if the lease is terminated and the building is sold.
The city failed to complete a deal to sell the Digital Domain building last November, but there is another prospective buyer now, Kopmar said, adding that the city hopes to sell the building in the next 12 months at a price that would provide at least $13.5 million in net proceeds.
"Delaying the refinancing exposes the city to potentially higher interest rates and smaller debt service savings if it proceeds with a similar transaction at a later date," said Kopmar. "Debt service on the Digital Domain bonds will consume a larger share of the city's operating budget."
The city realized a larger-than-anticipated surplus in fiscal 2013 and will use the additional reserves to support the Digital Domain debt in fiscal 2014.
In the following years, the increased debt service will pressure the city's budget, which is already constrained by high debt service costs and limited expenditure flexibility, Moody's said.
City officials may recommend a tax rate increase for fiscal 2014 to support the added debt service on the Digital Domain bonds, alleviate pressure from other city-guaranteed bonds, and provide additional revenues for services, the rating agency said.