LTC 139-2011 Moody's & S&P's Affirmation/Upgrade of City's & RDA's Bond Ratings 0 MIAMIB
OFFICE OF THE CITY MANAC �� . c ri; 'S OFFICE
NO. LTC # 139 -2011 LETTER TO COMMISSION
TO: Mayor Matti Herrera Bower and Members of the City Commission
FROM: Jorge M. Gonzalez, City Manager
DATE: June 3, 2011
SUBJECT: Moody's and Standard & Poor's ffirmation and Upgrade of City's and RDA's Bond
Ratings
The purpose of this Letter To Commission is to advise you of the results of positive annual reviews
by the two rating agencies for different components of the City's debt, which even includes an
upgrade of two levels on its Redevelopment Agency debt. These results reflect a strong
financial position for the City at a time when other local governments have seen their
ratings affected by the ongoing slow economy and the condition of state and federal
government finances. Please see the attached online news report on Moody's activities the first
three months of the year. As reported by Moody's, downgrades outpaced upgrades by almost 4
tot . This was the second highest period of downgrades since the first quarter of 2002, and higher
than the full year 2010 (downgrade) rate of 2.2 to 1. S & P's reported similar actions last year,
making the positive reviews all the more significant.
The City's reviews included confirmation of our existing excellent ratings, upgrades, and the
assignment of good ratings for two bond issues, as follows:
• Moody's Investor Service ( "Moody's ") confirmed the City's Aa2 General Obligation Bond
Rating. Moody's stated that the Aa2 rating was confirmed based on the City's established
national and international tourism and entertainment -based economy, a substantial tax
base along with well- managed financial operations characterized by consistent operating
surpluses, healthy reserves and an average debt burden. This rating is an above average
rating which is just two levels below the top notch rating of Aaa.
• Moody's assigned an Aa3 rating to the City's Special Obligation Bonds (Pension Fund
Project). The Aa3 rating for the Special Obligation Bonds is based on the City's significant
non -ad valorem revenue which afford satisfactory protection for debt service given solid
financial management, and historically strong financial policies resulting in healthy reserves.
• Moody's upgraded the rating of the Miami Beach Redevelopment Agency ( "RDA ") Tax
Increment Revenue Refunding Bonds Series 1998A to Al from A3, an increase of two
rating levels. The RDA's bond rating is based on the mature, strong tax increment City
Center district which has tripled in value over the past 10 years while declining only
modestly in the recent economic downturn. The City Center's pledged increment revenues
alone provide strong debt service coverage prior to the additional pledge of a subordinate
lien on resort tax revenues. The RDA's bond rating of Al is one of the highest in the State
for a Community Redevelopment Agency.
• Moody's also assigned an Al rating to the RDA's Tax Increment Bonds Series 2005A. The
RDA's bond rating of Al is one of the highest in the State for a Community Redevelopment
Agency. Moody's expects the city's financial operations to remain healthy given solid
Page 2 of 2
Positive Bond Rating News
financial management and historically stable reserve levels.
• Standard & Poor's ( "S &P ") confirmed the City's AA- with a stable outlook rating on the
General Obligation Bonds. S &P's stated that the AA- rating with a stable outlook is based
on their opinion that the City's tax base will remain stable and that the financial operations
will remain strong. S &P's rating reflect the City's location and participation in the deep and
diverse Miami metropolitan area; an economic base that continues to diversify but remains
highly dependent on the tourism industry; strong financial performance and reserves.
• Standard & Poor's ( "S &P ") upgraded the rating of the Miami Beach Redevelopment Agency
( "RDA ") Tax Increment Revenue Refunding Bonds Series 1998A to A+ from A. The RDA's
upgraded rating is based on the agency's strong historical revenues and debt service
coverage which is not expected to deteriorate despite a weakened economic climate and
declines in assessed values. The City Center's pledged increment revenues alone provide
strong debt service coverage prior to the additional pledge of a subordinate lien on resort
tax revenues. The RDA's bond rating is one of the highest in the State for a Community
Redevelopment Agency.
In all of 2008, S &P downgraded the ratings of just 37 bonds issued by state and local
governments. However, during the first three quarters of 2010, S &P cut the ratings on 343 state
and local government- issued bonds; that is 26% higher than all of 2009. In January 2011, Standard
& Poor's issued a warning that this year could bring a potential surge in the number of downgrades
of bonds issued by state and local governments.
If you have any questions or need additional information, please feel free to contact me.
JMG:PDW
H. \Other Departments \Finance \LTC Moodys & SP Affirmation Upgrade of City & RDA Bond Ratings FINAL.doc
BUSINESS NEWS
Tough year ahead for U.S. states, local governments: Moody's
By Karen PierogPosted 2011/04/26 at 3:36 pm EDT
CHICAGO, Apr. 26, 2011 (Reuters) — States and local governments are facing their toughest year so far,
as rating downgrades continue to outpace upgrades, Moody's Investors Service said on Tuesday.
The first quarter of 2011 marked the ninth consecutive quarter in which downgrades dominated, according to the rating
agency.
"With negative outlooks assigned to all major municipal sectors, the trend is likely to prevail for all of 2011," said Conor
McEachern, a Moody's assistant vice president, in a statement.
There were 66 downgrades and 17 upgrades in the first three months of 2011 for a ratio of 3.9 to 1 -- the second highest
since the first quarter of 2002 and higher than the full -year 2010 ratio of 2.2 to 1, Moody's reported.
Most notably, the ratings for Nevada and Kentucky fell to Aa2 from Aal, while Providence, Rhode Island, was
downgraded to A3 from Al.
McEachern said states and school districts this year will be facing "weak revenue growth, significant spending obligations
and the loss of federal stimulus funding."
Meanwhile, cities and other local municipalities will have to deal with cuts in state aid, dropping property values and
diminished budget options, he added.
Other sectors of the $2.9 trillion municipal market will also see ratings pressure, including nonprofit hospitals, private
universities, and airports, according to the rating agency.
For buy- and -hold investors, recent developments are of limited importance, said Fred Yosca, manager of underwriting
and trading at BNY Mellon Capital Markets.
"In terms of whether you're going to get 100 cents back on your dollar in maturity, I think as long as you're buying
reasonably good credits, which is pretty easy to do in the municipal forum, you're fine," said Yosca.
"If you're a total- return investor, I guess you've got to be more sensitive to credit considerations because you might want
to sell at a time its not opportune to sell from a credit standpoint," he said.
Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management, said he expects
credit pressure to continue for "at least two, and possibly four" more years. But he said the recession has caused some
issuers to improve management and discard waste, which bodes well for performance.
"The majority of credits, I would expect, will see a stabilization of credit quality. The minority would see things getting
weaker," he said.
(Additional reporting by Edith Honan in New York; Editing by Padraic Cassidy)
`.= REUTERS
Copyright Reuters 2008. See Restrictions for more details.
S &P warns of more muni bond
downgrades
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of the popular fund hit their lowest level since August 2009. Click the chart for more bond market data. By Hibah
Yousuf, staff reporterJanuary 24, 2011: 2:36 PM ET
NEW YORK (CNNMoney) -- Just as fears about a heavy sell off in the municipal bond market
seemed to be easing, Standard & Poor's issued a warning that this year could bring a potential surge
in the number of downgrades of bonds issued by state and local governments.
States including California, Illinois and New York are strapped for cash and dealing with deep budget
deficits, sparking fears that states and cities could fall short in payment obligations to muni bond
holders.
During the first three quarters of 2010, S &P cut ratings on 343 state and local government- issued
bonds. That's 26% higher than all of 2009. And in all of 2008, S &P downgraded ratings of just 37
bonds issued by state and local governments.
"We believe that continued revenue decreases for state and local government may increase fiscal
strain on budgets, and monitoring of liquidity will be especially important in 2011," said Standard &
Poor's credit analyst Gabriel Petek.
Muni bond investors have been fleeing the market in droves since November.
The sell -off caught additional fire after Wall Street analyst Meredith Whitney issued a muni bond
warning during an appearance on "60 Minutes" last month.
She said that the market could see 50 to 100 municipal bond defaults and restructurings this year,
resulting in hundreds of billions of dollars in losses to investors.
Not everyone agrees with her doomsday scenario. S &P says it expects that state and local
governments will largely be able to maintain medium to high investment-grade ratings this
9 9 Y year.
9 9 9 Y
While downgrades are likely, Petek said he doesn't think the budget problems will result in a "notable
increase" in defaults.
That's probably because defaults are not very common. State and local governments are obligated
by law to balance their budgets between each fiscal cycle. In fact, there have been just 54 defaults
between 1970 and 2009 out of 18,000 muni issues, according to Moody's Investors Service.
Just last Friday, Fitch Ratings raised its credit outlook on Illinois, citing "steps the state has taken to
address its budget imbalance through a sizeable increase in both corporate and personal income
taxes."
"Governments are under financial stress and undoubtedly have Tong -term liability problems related to
pensions and health care costs, but they have been making substantive cuts in their budgets, and
will continue to cut more meat to balance their budgets," said Hugh McGuirk, head of municipal
investments at T. Rowe Price.
He added that investors have to remember that municipal bonds are higher quality than other fixed
income securities, and even in the current environment, continue to be so.
How to invest in municipal bonds
"All the stories about the demise of the bond market are grossly exaggerated," McGuirk said. "We'll
see more downgrades and more cities reach breaking points, but that doesn't mean the broad
municipal bond market will go to hell in a hand basket. There's still a lot of good credit out there."
Even in the event of a default, bond investors typically recover most of their money. al