Moody’s Investors Service downgraded Wenatchee, Wash.’s unlimited-tax general obligation bond rating to Ba2 from A3 on Monday because the city will allow a local events center to default on debt the city agreed to back.
Moody’s also cut the city’s limited-tax rating to B2 from Baa2. It said the downgrades are a result of the city’s “lack of willingness” to avert an expected default on June 1 under a contingent loan agreement the city has for interest payments on $36 million of bond anticipation notes issued by the Greater Wenatchee Regional Events Center Public Facilities District.
Moody’s said the city’s inability to honor its agreement constitutes a default “on all parity obligations,” including Wenatchee’s $6.4 million of outstanding limited-tax bonds.
Wenatchee also has 2.9 million of unlimited-tax debt.
“Post-default recovery is expected to be less than 100%, although the city plans to make timely payments on its $6.4 million of outstanding limited-tax bonds,” Moody’s said in the report.
Analysts kept the rating on review for further downgrade.
The district, which was formed in 2006 to build and operate the Toyota Town Center arena in Wenatchee, defaulted on $42 million of bond anticipation notes upon their Dec. 1 maturity because they lacked the money or means to pay them off.
The default followed failed rescue attempts by the city and the state of Washington.
In a filing with the Municipal Securities Rulemaking Board, the district said it had provided a notice at the end of last month as required by the agreement asking the city for nearly $1 million to make the June 1 payment.
Wenatchee Mayor Frank Kuntz said in a letter to the district that the city did not have enough money to make the loan.
“Effort to resolve the default of the PFD notes are now underway,” Kuntz said.
Kuntz said that the city has raised its sales tax by 0.2% and the Public Facilities District has imposed a 0.1% sales tax, which he said will be used “to work toward resolving the default.”
In 2008 the district issued three series of notes — $5 million of limited sales tax Bans, and $5.5 million and $31 million of revenue and special tax Bans.
Standard & Poor’s has downgraded the district’s notes’ short-term rating to D from SP-3.
It also dropped the city’s long-term and underlying rating to BBB from A-minus.