Moody's Investors Service said it has downgraded to Ba1 from Aa2 the rating on the city of Vadnais Heights, Minn.'s outstanding general obligation unlimited tax debt.
Concurrently, Moody's has assigned a stable outlook.
The Ba1 rating applies to $1.8 million in outstanding Series 2004A and B bonds secured by the city's general obligation unlimited tax pledge. The city has a total of $10.6 million in general obligation debt outstanding.
The downgrade to Ba1 reflects the city's decision to terminate its lease agreement with CFP Vadnais Heights, LLC (CFP) effective December 31, 2012. By terminating the lease, the city will no longer appropriate rental payments sufficient to meet debt service obligations as stated in the master lease agreement.
The rental payments were to cover annual operations and debt service on a sports complex financed by $24.8 million of lease revenue bonds issued by the Economic Development Authority (EDA) of the City of Vadnais Heights (not Moody's rated).
On August 27, 2012, the City of Vadnais Heights stated its intent to terminate the lease agreement effective December 2012 and not to appropriate funds to make rental payment under the master lease for 2013 or any subsequent year, leading to a likely default on the city's lease revenue bonds series 2010, A, B and C.
The city's failure to appropriate represents a significant lack of willingness to pay on a lease obligation that supported debt issued in the capital markets.
The stable outlook reflects Moody's expectation that the city's healthy general fund financial operations, evidenced by consistently strong reserve levels and available alternate liquidity; and a moderately-sized tax base with above average wealth levels will not materially change over the medium term.
