Moody’s Investors Service upgraded St. Louis general obligation credit to A2 from A3 ahead of the city’s sale this week of $44 million of new-money leasehold revenue bonds, which were raised to A3 from Baa1.
St. Louis has $51 million of GO debt outstanding and $610 million of leasehold debt.
The bonds are being sold through the St. Louis Municipal Finance Corp. City Comptroller Darlene Green’s office manages city debt issues.
Moody’s attributed the upgrades to “the city’s improving financial operations characterized by satisfactory reserves and the expectation of balanced operations in fiscal 2007 and fiscal 2008 coupled with revenue enhancements that are expected to meet future pension funding needs.”
The GO rating also reflects a local economy that faces challenges but has seen modest population gains as downtown and neighborhood redevelopment continues. It also reflects above average but manageable debt levels.
The deal is coming in two series, one consisting of $25 million that will finance a range of capital projects, including improvements to a juvenile detention center. The second, consisting of $19.5 million, will help cover the city’s annual required contribution for fiscal 2008 to its police and firefighter pension funds.
The bonds will sell during the first week of June with Siebert Brandford Shank & Co. as book-runner and Citi and JPMorgan as co-senior managers. Rebecca Perry-Glickstein of P.G. Corbin Group Inc. is financial adviser and Armstrong Teasdale LLP is bond counsel.
The bonds are secured by the city’s pledge to annually appropriate lease-rental payments that cover debt service. The city will use revenues from its new half-cent public safety sales tax to repay the pension payment series and general funds on the other series.
St. Louis also won upgrades from Fitch Ratings and Standard & Poor’s last month. Standard & Poor’s upgraded the city’s issuer rating to A-plus from A and its appropriation and leasehold revenue bonds to A from A-minus. Fitch upgraded the GO rating to A from A-minus and the leasehold and appropriation rating to A-minus from BBB-plus.
The resolution of pension funding issues has also helped shore up the city’s balance sheet. St. Louis last year sold $143 million of debt to fund additional pension payments to its police and firefighters funds as required under a Missouri Supreme Court decision that sided with the pension funds.
To help cover its pension obligations, the city extended to wireless providers its 7.5% gross receipts telecommunications tax, which should raise $7 million more annually. In February, it won voter approval for a half-cent sales tax dedicated to public safety that will generate about $18 million more annually.
The police, fire, and general employee pension funds are in strong shape, funded at between 88% and 93%. The city’s other post-employment benefits are limited to health care for police and considered modest.