Release date- 22052015 - Rating Action: Moody's assigns Aa3 rating to Tucson, AZ's GO bonds Global Credit Research .
Issue: General Obligation Bonds, Series 2012-C (2015); Rating: Aa3; Sale Amount: $20,000,000; Expected Sale Date: 6/5/2015; Rating Description: General Obligation
Issue: General Obligation Refunding Bonds, Series 2015; Rating: Aa3; Sale Amount: $36,630,000; Expected Sale Date: 6/5/2015; Rating Description: General Obligation
Issue: Certificates Of Participation, Refunding Series 2015; Rating: A1; Sale Amount: $32,600,000; Expected Sale Date: 6/5/2015; Rating Description: Lease Rental: Appropriation
Moody's Investors Service has assigned Aa3 ratings to the City of Tucson, Arizona's $20 million General Obligation Bonds, Series 2012-C (2015) and $36.6 million General Obligation Refunding Bonds, Series 2015 and affirms the Aa3 rating on the city's parity general obligation bonds. Moody's also assigns an A1 rating to Tucson's $32.6 million Certificates of Participation, Refunding Series 2015 and affirms the A1 rating on the city's parity certificates of participation. Concurrently, Moody's affirms the A2 moral obligation rating on the Rio Nuevo Multipurpose Facilities District (City of Tucson), Arizona's subordinate lien excise tax revenue bonds.
SUMMARY RATING RATIONALE
The Aa3 ratings on the city's GO bonds reflect the city's large tax base that appears to have stabilized and is showing signs of improvement after years of decline, a local economy that benefits from the stabilizing institutional presence of the University of Arizona and Davis Monthan Air Force Base, relatively stable financial operations despite a largely passive revenue stream and chronically weak reserve levels relative to peers, somewhat high debt burdens (both direct and overlapping), and high pension liabilities.
The A1 ratings on the city's COPs reflect the underlying credit characteristics of the city's GO credit, a weaker security pledge subject to annual appropriation, and satisfactory provisions of the master lease structure. The rating also reflects Moody's view that the risk of non-appropriation is low given the master lease structure that requires appropriation for all or none of the projects, the largely essential nature of the cross-collateralized leased assets, and relatively affordable lease debt burden.
The A2 rating on the Rio Nuevo Multipurpose Facilities District junior lien excise tax revenue bonds reflects the city's moral obligation pledge to cure a deficiency in pledged revenues to make debt service payments for bonds issued by the Rio Nuevo MFD, subject to appropriation.
The negative outlook on the city's ratings reflects Moody's view that the city will become increasingly challenged to maintain structural balance in its financial operations, particularly as the fixed costs associated with pension liabilities rise.
WHAT COULD MAKE THE RATING GO UP
Sustained long-term economic growth and diversification
Long-term improvement in wealth measures
A formal commitment to higher reserve and cash levels given exposure to economically-sensitive revenues
WHAT COULD MAKE THE RATING GO DOWN
Deterioration of the city's finances, including material declines in reserve levels
Protracted budget imbalances, with no plan for a return to structural balance
Long-term sustained deterioration of the city's tax base or local economy
The second largest in the state by population, the city serves 530,000 residents across 230 square miles of Pima County in south-central Arizona. The city operates pursuant to a council/manager form of government.
The general obligation bonds are secured by the city's unlimited property tax pledge.
The city's COPs are secured by lease rental payments that are subject to annual appropriation.
The Rio Nuevo Multipurpose Facilities District bonds are secured by a subordinate lien pledge on the district's incremental state sales tax revenues. The bonds are additionally secured by an intergovernmental agreement with City of Tucson, in the event there is insufficient pledged revenues to make debt service payments, to cure that deficiency, subject to annual appropriation.
USE OF PROCEEDS
The General Obligation Bonds, Series 2012-C (2015) bond proceeds will be used for various road improvements. The General Obligation Refunding Bonds, Series 2015, will be used to refinance for savings various series and maturities of the city's previously issued GO bonds. The Certificates of Participation, Refunding Series 2015 will be used to refinance for savings various series and maturities of the city's previously issued COPs.
The principal methodology used in the general obligation rating was US Local Government General Obligation Debt published in January 2014. The principal methodology used in the lease rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. The principal methodology used in the moral obligation rating was Moody's Approach To The Moral Obligation Pledge published in November 2008. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
William Yong Hwan Oh
Public Finance Group
Moody's Investors Service, Inc.
One Front Street
San Francisco, CA 94111
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007