Wenatchee, Wash., Ratings Changed by Moody's

Moody's Investors Service said it has upgraded the city of Wenatchee, Washington's unlimited tax general obligation rating to Ba1 from Ba2 and its limited tax rating to B1 from B2. At this time, Moody's also has downgraded the city's senior lien combined water and sewer enterprise revenue rating to Baa1 from A1.

$2.6 million of unlimited tax, $5.8 million of limited tax debt, and $4.3 million of senior lien water and sewer debt is affected.

Stable outlooks have been assigned.

The upgrades and outlook reflect diminished but ongoing financial risks following the cure of a recent default brought about by the city's unwillingness to honor a general obligation, limited tax contingent obligation to make loans for interest-only payments on $36.6 million sales tax and revenue bond anticipation notes (not rated) issued by the Greater Wenatchee Regional Events Center Public Facilities District (PFD).

On May 10, 2012, the city of Wenatchee indicated that despite budgeting $2.1 million in fiscal 2012 for PFD-related issues, there were insufficient general fund moneys to advance the $967,000 for a June 1 interest payment, an event of default on non-rated city debt on parity with rated GOLT obligations. The PFD has issued takeout sales tax bonds which eliminate much of the city's contingent liabilities for PFD operations and debt service, shrinking the city's maximum annual pledged subsidy to $200,000 per year and favorably settling with most of the city's major potential legal counterparties.

The Ba1 general obligation rating reflects both the recent default and the diminished risks associated with a cure which paid note holders in full but not in a timely manner, as well as recently challenged city financial operations. The rating also incorporates the city's modestly sized tax base and modest debt levels featuring some dedicated debt levies.

The B1 general obligation, limited tax rating distinction further incorporates the recent, though cured, cross default on non-rated parity obligations, some ongoing risks from potential litigation, as well as limited near-term operational flexibility as the city drew down reserves to low levels for PFD-related subsidies and legal costs.

The Baa1 senior lien water and sewer revenue rating distinction reflects the enterprise's common management with general city operations mitigated somewhat by independent rate setting authority resulting in adequate debt service coverage levels.

A stable outlook incorporates the expectation that despite a successful PFD takeout of the defaulted BANs, Wenatchee still faces challenged financial operations and ongoing though attenuated litigation risk.

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