As the City prepares to sell General Obligation bonds to finance the acquisition of the New Roc Garage from the New Rochelle Industrial Development Agency, Moody's has informed the City that while it's Aa3 bond rating will be affirmed but it will place a negative outlook on the City's credit rating. The City hopes to save $3 to $4 million of debt service savings over the next 11 years.
In order to sell bonds, the City needs a rating review by a major rating service. The transaction will be discussed in tonight's City Council meeting.
"While the City’s bonds are still judged to be of high quality", City Manager Chuck Strome stated in a memo to City Council members, "the negative outlook recognizes the City’s reduced level of financial flexibility following continual drawdowns on our fund balance."
Strome continued "Moody’s notes that the negative outlook can be removed upon the achievement of structurally balanced budgets resulting in positive financial operations and/or the implementation of new or additional revenue sources to improve our fund balance position. As a practical consequence, the negative outlook connotation may result in slightly higher interest rates when this and future bond issues are sold. As is their practice, Moody’s will release this rating to the wire services in the next day or so."
Moody's downgraded New Rochelle's Bond Rating in December 2010. At the time New Rochelle Finance Commissioner release a statement which read, in part:
Moody’s has downgraded the City’s bond rating from Aa2 to Aa3. While acknowledging the City’s sizable tax base, wealth levels, and continued budget controls, Moody’s cites a weakened financial position resulting from declining sales tax and other revenues and the deterioration of our fund balance over the past three years. Moody’s has revised the ratings of 17 municipalities in New York State since the re-calibrated rates were established. Fifteen of those ratings were downgraded including the Village of Harrison (downgraded from Aa2 to Aa3), the Village of Tuckahoe (downgraded from A1 to A2) and Monroe County (downgraded from A2 to A3). The City’s new rating of Aa3 is still a relatively strong rating and is considered by Moody’s to be “of high quality and subject to very low credit risk”. Comparatively, this rating is lower than White Plains, equal to Mount Vernon and stronger than Yonkers. The impact of this rating change will mean slightly higher interest rates on future debt obligations when the City goes to market
Moody's ratings for Long-term obligation ratings
Aaa: Moody judges obligations rated Aaa to be the highest quality, with the "smallest degree of risk".
Aa1, Aa2, Aa3: Moody judges obligations rated Aa to be high quality, with "very low credit risk", but "their susceptibility to long-term risks appears somewhat greater".
A1, A2, A3: Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements "present that suggest a susceptibility to impairment over the long term".
Baa1, Baa2, Baa3: Moody judges obligations rated Baa to be "moderate credit risk". They are considered medium-grade and as such "protective elements may be lacking or may be characteristically unreliable".
Speculative grade (Also known as High Yield or 'Junk')
Ba1, Ba2, Ba3: Moody judges obligations rated Ba to have "questionable credit quality."
B1, B2, B3: Moody judges obligations rated B as speculative and "subject to high credit risk", and have "generally poor credit quality."
Caa1, Caa2, Caa3: Moody judges obligations rated Caa as of "poor standing and are subject to very high credit risk", and have "extremely poor credit quality. Such banks may be in default..."
Ca: Moody judges obligations rated Ca as "highly speculative" and are "usually in default on their deposit obligations".
C: Moody judges obligations rated C as "the lowest rated class of bonds and are typically in default," and "potential recovery values are low".
WR: Withdrawn Rating
NR: Not Rated