Moody’s Finds Salisbury No Better, No Worse Since the 2014 Bond Rating Downgrade. Stabilized in Mediocrity

Posted on May 19, 2015



Moodys.com/research

New York, April 03, 2015 — Moody’s Investors Service affirms the City of Salisbury’s (NC) General Obligation bond rating of A3 affecting $1.9 million of outstanding parity obligations. Additionally, Moody’s affirms the city’s Certificates of Participation (COP) and Bank Certificates rating of Baa3 with parity debt obligations totaling $33.8 million. Lastly, Moody’s affirmed the A3 rating on the city’s Combined Enterprise System revenue bonds affecting $28.6 million of rated debt. The outlook on all of the city’s outstanding debt has been revised from negative to stable.

The city’s General Obligations are secured by the full faith and credit of the city. The COP and Bank Certificates are secured by the city’s annually-appropriated lease payments to the Trustee as well as a first lien on the financed assets. Finally, the Combined Enterprise System Revenue Bonds are secured by the net receipts of the city’s water and wastewater system.

SUMMARY RATING RATIONALE

Affirmation of the A3 GO rating primarily reflects the city’s stable, slightly concentrated tax base, adequate General Fund reserve position, and below average socio-economic indicators. The rating also incorporates the city’s exposure to significant enterprise system debt.

Affirmation of the Baa3 COP and Bank Certificate rating primarily reflects the diminished security due to non-appropriation risk, but incorporates the adequate state oversight of North Carolina’s Local Government Commission (LGC). Additionally, the rating incorporates the non-essentiality of the network, system liabilities that exceed assets, and a history of significant financial support provided by the city’s water and sewer enterprise for operations and debt service.

Affirmation of the A3 on the city’s Combined Enterprise System revenue bonds primarily reflects the system’s stable service area with ample long-term system capacity and a manageable debt profile. The rating further incorporates the narrowed cash position resulting from uncertainty of recovery of the system’s interfund loans used to support the operations and debt service requirements of Fibrant, the city’s fiber-to-the-home network.

OUTLOOK

The outlook revision to stable from negative is based on improved operations of the city owned fiber network largely due to improved management. The city issued COPs to construct Fibrant, a fiber-to-the-home network. Fibrant incurred losses since its inception and is an operating burden and long-term liability of the city via appropriation. Improved fiscal 2014 Fibrant resources allowed the enterprise to operate on a self-sufficient basis for the first time. The stable outlook reflects our expectation that strong state oversight via the LGC coupled with self-sustaining financial performance will enable the Broadband enterprise to continue to strengthen over the near-term. The city remains exposed to significant enterprise risk and escalating debt service demands in fiscal 2015 and beyond coupled with the outstanding interfund loan owed to the water & sewer enterprise continue to pose significant risk to the city’s overall debt profile.

WHAT COULD MAKE THE RATING GO UP

• Significant and sustained trend of tax base and service area expansion

• Stabilization of Fibrant operations with a sustained trend of self-support

WHAT COULD MAKE THE RATING GO DOWN

• Deterioration of General Fund reserves

• Fibrant’s continue reliance on other city funds to balance operations

Moody’s.Com

 

 

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