Moody's Investors Service said it has downgraded to A2 from A1 the rating on the city of Virginia, Minn.'s general obligation debt, affecting $36 million in post-sale debt outstanding.
Moody's has also downgraded to A3 from A2 the rating on city of Virgina's Housing and Redevelopment Authority's $16.2 million of outstanding lease revenue debt.
The outlook remains negative at the lower rating levels.
Concurrently, Moody's has assigned an A2 rating with a negative outlook to the city's $3.2 million general obligation government housing refunding bonds, Series 2012B.
The Series 2012B bonds are secured by city's general obligation unlimited tax pledge. In addition, the city has pledged net revenues of the Washington Manor Project.
The outstanding general obligation bonds are secured by the city's general obligation unlimited tax pledge, although debt service is paid from a variety of sources, including revenues from public utilities, housing activities, and the city's hospital.
The downgrade to A2 on the city's general obligation debt reflects a substantial decline in the city's modest tax base, the current size of which is appropriately reflected in the lower rating.
The rating also incorporates the city's satisfactory general fund financial position, pressures outside the general fund in capital and enterprise funds, and elevated debt burden, much of which is supported with non-levy sources.
The downgrade to A3 on the city's lease revenue debt is based on the risk of non-appropriation, the essentiality of the financed hospital project, and the credit characteristics inherent in the city's A2 general obligation rating.
The negative outlook reflects the possibility that challenges in the city's capital funds and enterprise funds may require future general fund support to the extent that the city's overall credit quality will weaken.
The negative outlook also incorporates the negative outlook on the healthcare sector.
Although the city does not expect to support its hospital enterprise fund nor the lease revenue bonds, the debt service on which has been paid with net hospital revenues, the city is nevertheless exposed to the stresses of this sector through its hospital enterprise fund and the lease revenue debt.