Moody's Investors Service said it has upgraded to Baa2 from Ba1, the rating on the city of Vadnais Heights, Minn.'s general obligation unlimited tax debt.
The Baa2 rating applies to the city's general obligation tax increment and improvement bonds, Series 2004A bonds, of which $1.1 million is outstanding. The Series 2004A bonds are secured by the city's general obligation unlimited tax pledge and benefit from a separate, dedicated unlimited tax levy. The city has a total of $8.2 million of general obligation debt outstanding. The outlook is stable.
The Baa2 rating reflects diminished risks following the cure of a recent debt default after the city's termination of a lease agreement on $24.8 million of senior lien bonds and $2 million of junior lien lease revenue notes (neither is rated by Moody's).
Upon termination of the lease, the city relinquished the project, a recreational sports complex, to the trustee. In June 2014, the trustee sold the complex to Ramsey County (Aaa/stable) for $10.55 million, resulting in a 45% recovery rate for senior lien bondholders and 0% for junior lien noteholders.
The Baa2 rating incorporates the city's unwillingness to meet the lease obligation, resulting in a low recovery rate for lease revenue bondholders.
The rating also reflects the elimination of the contingent liability with the sale of project assets and moderate risk associated with a pending lawsuit brought by the complex's operator.
The Baa2 rating also recognizes the strong general obligation credit fundamentals of the city including sound general fund operations, stable economy in the Twin Cities metropolitan area, and low debt burden.
