Friday, September 30, 2016

The Strange Case of the Slipping Bond Rating

City, Citizen-Times say it’s AAA; S&P, State Treasurer say no it’s not
By Roger McCredie

On the surface it may sound like a small thing:  a discrepancy involving a single letter in the designation of Asheville’s creditworthiness.  

But the City of Asheville has been representing its Standard & Poor’s bond rating as one thing, while the state treasurer’s office and the city’s own internal documents show it as something else.

And with more than a hundred million dollars on the table in a politically-charged bond referendum set for November 8, the difference and its implications become pretty important.

The city’s website says,
“Bonds are considered one of the safest municipal funding tools available. Because Asheville has an excellent credit rating (Standard & Poor's "AAA"), the City benefits from low interest on bond issues.”

Source: City of Asheville Website as of September 30, 2016
And as recently as July 18, the Asheville Citizen-Times reporter John Boyle wrote,
“ It's important to note that Asheville has a triple-A bond rating with Standard & Poor's, the highest possible, and the second-highest rating with Moody's, AA1, according to city Chief Financial Officer Barbara Whitehorn.”
But that’s simply not so.  At least with regard to Standard & Poor’s, which is considered the gold standard of municipal creditworthiness determination, and which the city keeps citing.

More than a year ago, in August of 2015, S&P did indeed upgrade the quality of a single city general obligation bond from AA+ to AAA.  That bond is a $1.97 million issue from the year 2000 and it was upgraded because there is very little left to pay on it.  Additionally the city’s overall indebtedness was relatively low a year ago.  

Also, this June S&P announced it had decided to upgrade the city’s water bonds from AA to AA+.

But neither of these actions has anything to do with the city’s repeated assertion, to the media and on its own website, that it has a general obligation bond rating of AAA.  The rating is AA+, as confirmed in a document obtained by Asheville Unreported.

That document is a pre-conference data sheet dated August 20, 2016, as reference material for a conference held to discuss particulars of the contemplated $74 million bond issue by the Local Government Commission at the NC State Treasurer.  The data sheet indicates key people as follows:
  • Mayor Esther Manheimer
  • City Manager Gary Jackson
  • City Chief Financial Officer Barbara Whitehorn
  • City Attorney Robin Currin
  • City Clerk Maggie Burleson
  • Scott E. Leo of Parker, Poe, Adams and Bernstein, the mammoth corporate legal firm that serves as Asheville’s retained bonds counsel.
The document (see graphic accompanying this article) clearly shows the Standard & Poor bond rating under which the bond issue will be undertaken as AA+.
Source: NC State Treasurer

This document was prepared only a month after Boyle’s piece and was obtained by Asheville Unreported from the NC State Treasurer's office. In addition, the NC State Treasurer's own debt analysis report for the period ending June 30, 2015 and updated January 2016, shows Asheville's rating as AA+. 

And the city’s AAA claim, as reported by Boyle via Whitehorn may currently be found on the city’s website.

All of which, with 39 days until the referendum, begs the question: why the persistent discrepancy?  

The NC State Treasurer's department will be handling the sale of these bonds if they pass. The interest rate the City pays is determined by these ratings. It would be in the best interest of both the City and the State to have the highest possible credit rating and therefore, the lowest possible interest rate on $74 million dollars.

The question remains: what will it be after all these bonds are issued?
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