S&P Global Ratings said it lowered its rating to A-minus from A on Suffolk County, N.Y.'s outstanding general obligation (GO) debt.
At the same time, S&P said it lowered its rating to BBB-plus from A-minus on Suffolk County Judicial Facilities Agency's outstanding lease revenue bonds. S&P also said it assigned its A-minus rating to the county's series 2017A GO bonds and its SP-1 rating to the county's series 2017 bond anticipation notes (BANs). The outlook on all long-term ratings is stable.
"The downgrade reflects our view of the county's available reserve levels, which have been negative for the past seven years, and our opinion that while the county's continued efforts to narrow its operating gaps are improving, these efforts are unlikely to allow for the accumulation of reserves to positive levels over the next four to five years," said S&P Global Ratings credit analyst Rahul Jain. "Despite improvements in recurring revenue and expenditures, S&P believe the county is unlikely to generate an operating surplus without the continued use of one-shot revenue and expenditure items over the next two years, which S&P view as a credit weakness. It is our opinion that while the county's operating performance has stabilized, the county will experience continued difficulty in generating surpluses over the near term, which would allow it to significantly improve fund balance over the near to medium term to levels in line with higher rated peers. S&P believe that current reserve levels are more comparable with those of lower rated peers, and despite the county's very strong economy, result in a weakened ability to meet financial obligations if a period of substantial economic distress were to occur."
The county's faith and credit GO pledge secures the GO bonds and BANs, including the statutory authorization to levy ad valorem taxes on all real property in the county, subject to the provisions of the 2011 tax levy limitation law, which imposes additional procedural requirements on the ability of municipalities to increase the real property tax levy year-over-year.
The Suffolk County Judicial Facilities Agency's series 2013 lease revenue bonds are rated one notch below the county's GO rating. The bonds are special obligations of the agency payable solely from net revenues received by the agency from the county, pursuant to the lease agreement, and from money on deposit in certain funds created under the resolution. There is no debt service reserve fund. The county's fiscal year begins Jan. 1, and its budget must be adopted by the second week of November, pursuant to local law. The county covenants to appropriate lease payments each year, and the payments are not subject to abatement. Debt service payments are due every May 1 and Nov. 1, which meets S&P’s criteria for rating appropriation-backed obligations, with lease payments due 60 days prior. Pursuant to its real estate purchase and sale contract, Suffolk County sold the H. Lee Dennison county administration building to the agency in exchange for bond proceeds of $70 million, and then leased the building back from the agency.
The 'SP-1' rating reflects S&P’s assessment of the county's low market-risk profile, based on the county's strong legal authority to issue long-term debt to take out the notes and its status as a frequent debt issuer that regularly provides ongoing disclosure to market participants.
S&P understand the proceeds of the series 2017A GO bonds will be used to undertake various capital projects, including road construction and rehabilitation, building construction and improvements, sewer improvements, as well as for funds for legal settlements, among other expenses.