Standard & Poor’s last week upgraded Fresno’s issuer credit rating to AA from AA-minus, with similar one-notch upgrades for outstanding city-supported bonds.
The rating action comes as the city is issuing bonds to clean up variable-rate debt that became expensive in the wake of recent market turmoil.
The Fresno Joint Powers Financing Authority plans to issue about $40 million of lease revenue refunding bonds in mid-April, according to Phillip Hardcastle, the city’s debt manager.
“It doesn’t make any sense to keep variable-rate debt out there at this point,” Hardcastle said, adding that the city may issue variable-rate bonds in the future if that market settles down.
The fixed-rate issue, which carries an underlying AA-minus rating, will take out about $30 million of auction-rate debt and also refund some fixed-rate debt.
Fresno’s auction rates began to spike in February, in the wake of multiple downgrades to bond insurer XL Capital Assurance, according to a staff report prepared for the City Council.
The city’s interest rate would be capped at 12% if a weekly auction failed, the report said — no auctions failed, but Fresno paid interest rates of up to 11.9%.
It hasn’t been a catastrophic problem for the city, Hardcastle said, because of conservative budget projections that have allowed Fresno to absorb the higher rates.
“We are thrilled about the upgrade from S&P in light of the economic conditions the city is in,” he said.
“The ratings are based on Fresno’s very strong recent growth in property values, supporting increased economic activity and tax base diversification, and its solid, consistent financial performance and reserves,” Standard & Poor’s analyst Rob Williams said in a news release.
Moody’s Investors Service affirmed its A3 rating for the city’s lease revenue bonds this month. It also assigns Fresno its A1 issuer rating, last affirmed in 2006. Fitch Ratings is also expected to rate the bonds, Hardcastle said, but had not done so at press time. Outstanding lease revenue bonds carry an underlying A-plus rating, and Fitch assigned the city an implied AA-minus rating.
UBS Securities LLC will underwrite the bonds. KNN Public Finance is financial adviser. Orrick, Herrington & Sutcliffe LLP is bond counsel. Lofton and Jennings is disclosure counsel.