CHICAGO Moberly, Mo. has received its first good rating news since losing its investment grade status in 2011 for reneging on a pledge to stand behind a $39 million bond issue for an artificial sweetener plant.
The sucralose plant debacle led to the company’s involuntary bankruptcy, numerous investor lawsuits against the finance team members including the former Morgan Keegan & Co., and various regulatory and legal actions at the local, state and federal level.
Standard & Poor’s on Friday revised its outlook to positive from stable on Moberly’s issuer credit rating of B and the B-minus rating assigned to certificates of participation. The ratings are deep in speculative grade territory.
"The outlook revision reflects our positive view of steps the city is taking to establish a better framework for avoiding future events of non-appropriation," said Standard & Poor's analyst John Sauter. “It is our opinion that the rating could improve as the city continues to demonstrate commitment to its existing appropriation debt and as new policies and practices become more ingrained and consistently followed by all city parties.”
The agency said the rating at its current level reflects “very weak management, stemming from the lack of willingness to support appropriation debt.”
The city of 14,000 lost its investment-grade rating when it reneged on the appropriation pledge on bonds issued through the Moberly Industrial Development Authority. Mamtek US Inc., which billed itself as a subsidiary of a Chinese firm that makes sucralose, defaulted in August 2011 on a payment to Moberly needed for debt service.
The city then informed trustee UMB Bank that it wouldn't honor its pledge to repay the debt. Mamtek then abandoned the half-built factory. Future court filings revealed the company misused bond proceeds and misled city and state officials as the project’s prospects as the company sought local and state subsidies.
Standard & Poor's lowered the city's issuer credit rating to junk bond status following the action.
Moberly last year formally adopted new debt management policies with the goal of repairing its credit rating. The policies were designed "to provide guidance for the types of debt issued, the issuance process, and the administration of the debt portfolio," the document said.
The city has continued to appropriate revenues for its series 2008 COPs, but uncertainty with regard to a long-term commitment to all appropriation obligations remains, Standard & Poor’s said. The city’s finance team remains largely intact since the bond issuance and it did little until last year to address city policies following the default.
“In our view, the policy is a step in the right direction, but it lacks more serious restrictions in terms of debt to be issued and how it could affect the budget,” analysts wrote in their new report.
The city also last December created a new economic development commission under an agreement that requires an independent third party to conduct due diligence on any company proposing to do business in the city in return for a financial incentive or other public assistance. The rating agency said its views those steps as positive to avoid future debt issuances that rely on questionable revenues.
The rating agency said the newer policies have yet to be tested.
"As Moberly's recent measures become more engrained in its regular operations, the level of uncertainty we have with regard to its willingness to support appropriation debt may lessen, which could bring with it an improvement in the rating," said Sauter. “In our view, we could potentially raise the rating by multiple notches within the one-year outlook horizon if our view on the city's willingness improves.”
