S&P Global Ratings said it lowered its underlying rating on Ralston, Neb.'s series 2011A, 2011B, 2012A, and 2012B general obligation (GO) arena bonds seven notches to BB from A-plus.
It also placed the rating on CreditWatch with negative implications pending receipt of documents surrounding the city's issuance of privately placed cash flow notes.
"The rating action reflects our view of the city's ongoing structural imbalance that is likely to persist and reflects a materially weaker financial position stemming from its underperforming arena," said S&P Global Ratings credit analyst Blake Yocom.
It also reflects the need to cash flow borrow to cover arena expenditures and without it, the city's short-term financial and liquidity position would be worse, the rating agency said.
The city's liquidity is very weak, coupled with what the agency views as weak management conditions. Furthermore, Ralston is overleveraged, reflected in a high overall debt burden as a percentage of market value. The city's high debt burden will likely continue to pressure its finances and taxing flexibility.
"Should the fiscal 2016 audit show persistent financial deterioration, compounded with the budgetary stress caused by the arena and the city's impaired overall liquidity position with potentially reduced market access, there could be additional downward rating actions," added Yocom.
The CreditWatch reflects the view that there is at least a one-in-two likelihood of a rating change within the next 90 days. Failure to provide requested information in connection to the city's privately placed cash flow notes will likely lead to additional negative rating action. After receipt of the documents, S&P will assess for any potential effect on the city's liquidity.
