Standard & Poor’s Assigns ‘AAA’ Rating to City’s Special Obligation Refunding Bonds
The City of Fort Lauderdale confirmed Wednesday that Standard & Poor’s (S&P) assigned a 'AAA' rating to its series 2020 special obligation refunding bonds. S&P also affirmed its ‘AAA’ rating for the City’s existing unlimited tax General Obligation (GO) and series 2012 special obligation bonds.
The S&P attributed the City’s ratings to a very strong economy, budgetary flexibility, management, and liquidity. The ‘AAA’ ratings from S&P will benefit Fort Lauderdale and its residents by allowing the City to refinance its Pension Obligation Bonds and save $1.5 million a year for the next 12 years.
In a similar move, Moody's Investors Service assigned Aa2 ratings and a positive outlook to the City’s 2020 special obligation refunding bonds. Moody's also affirmed the Aa1 rating on the city's outstanding general obligation unlimited tax (GOULT) debt.
Both major Wall Street credit rating agencies reiterated their support of high marks for the City of Fort Lauderdale. The City’s rating was upgraded to ‘AAA’ from AA+ by S&P in January 2020 in recognition of its budgetary performance and ongoing commitment to fiscal integrity. Moody’s also upgraded its outlook on general obligation bonds from stable to positive earlier this year.
The City took proactive measures to pursue higher agency ratings. In talks with the rating agencies, City staff outlined plans to upgrade water, sewer, and stormwater systems. They also explained strategies to phase out over four years the Return on Investment (ROI), or transfer of utility funds to the General Fund. The City succeeded in eliminating ROI transfers in March 2020, two years ahead of schedule.
“The reaffirmation of the city’s top-level bond ratings shows that this City Commission and the city manager are making the prudent decisions of how to navigate through the financial uncertainty of the COVID-19 pandemic and that we have proven that plans are in place to make budget adjustments as needed to maintain our financial health as a city," said Mayor Dean J. Trantalis. "The initial decision of the bond analysts to raise our city to the highest rating was in large part the result of our follow-through on promises to end the annual raids of utility reserves to balance the budget. I’m pleased that Standard & Poor’s and Moody’s have maintained their confidence in our financial strategies amid this economic turbulence. Their decision will ensure that the cost of financing infrastructure projects and other work is less than it otherwise would be.”
The ratings and opinions of Wall Street’s leading credit rating institutions signaled strong confidence in the financial management of the City of Fort Lauderdale. Highlights of the reports are summarized below. The full reports may be viewed at: S&P Global Ratings Report and Moody's Investors Service Report
Standard & Poor’s Global Ratings Summary:
S&P Global Ratings assigned its 'AAA' rating on the City of Fort Lauderdale, Fla.'s series 2020 special obligation refunding bonds. At the same time, S&P Global Ratings affirmed its 'AAA' rating on the city's existing unlimited tax GO bonds and existing series 2012 special obligation bonds. The outlook is stable.
S&P pointed to several measures Fort Lauderdale has taken that are “above the sector standard, including management's efforts to improve the funded status of Fort Lauderdale's pension and other postemployment benefits (OPEB) plans as well as integration of costs associated with climate change, storm preparedness, and sea-level rise. These costs have been incorporated into management's long-term plans and annual reporting to the governing body on infrastructure improvements related to this area of environmental risk that we view as being above the sector standard given Fort Lauderdale's coastal exposure.”
The rating reflects S&P’s opinion of the following factors for Fort Lauderdale:
- Very strong economy;
- Very strong management;
- Very strong budgetary flexibility;
- Very strong liquidity;
- Adequate debt and contingent liability profile;
- Strong institutional framework score; and
- Adequate budgetary performance with balanced operating results in the general fund and an operating surplus at the total governmental fund level.
Series 2020 bond proceeds will be used to refund a portion of the City’s series 2012 special obligation bonds for present value savings. The series 2020A bond proceeds will be used for parks and recreation projects and the series 2020B bond proceeds are planned for construction of a new police and public safety headquarters building.
Moody’s Investors Service Rating Action Summary:
In a similar move, Moody's Investors Service assigned Aa2 ratings and a positive outlook to the City’s Taxable Special Obligation Refunding Bonds, Series 2020. Moody's also affirmed the Aa1 rating on the city's outstanding general obligation unlimited tax debt.
According to Moody’s, “The Aa2 non-ad valorem rating reflects the city's sufficient and growing level of legally-available non-ad valorem revenues supporting debt service, as well as limited plans for additional borrowing under this revenue pledge. The one-notch distinction between the city's general obligation unlimited tax (GOULT) rating of Aa1 represents the more limited pledge of non-ad valorem revenues, which the city is obligated to budget and appropriate annually.”
Moody’s provided additional rationale for its ratings, “The Aa1 GOULT rating is based on the city's substantial and diverse economic base that continues to exhibit healthy growth, strong financial position that will remain stable despite easing reliance on transfers from the city's utility funds, and average wealth and income levels. The rating also reflects the city's manageable debt and pension liabilities, rendering manageable fixed costs.”
The rating action went on to discuss the City’s strong position in light of the coronavirus, “We do not see any material immediate credit risks for the City of Fort Lauderdale. The situation surrounding coronavirus is rapidly evolving, however, and the longer-term impact will depend on both the severity and duration of the crisis. Still, the city has sufficient reserves built up to withstand revenue declines as a result of tax revenue declines from business closures and employment loss. Further, the city has implemented cost saving measures to decrease expenditures and does not anticipate use of general fund reserves to balance the budget.”