Monrovia’s CalPERS Response Plan Refinancing Bond Rated “AA-,” Overall Credit Rating “AA”

The better the bond rating received by the City, the better the interest rates that we will receive from the financial markets. – Courtesy photo by Nick Youngson

Staff participated in a bond rating call with Standard & Poor (S&P) two weeks ago to discuss the issuance of a pension obligation bond in an effort to refinance the City’s existing pension liability debt.  There had been some concern expressed by the financing team that given the size of our proposed bond issuance (+/-$115 million), S&P might rate our bonds as an Upper Medium Grade (A- / A / A+) investment.  Such a factor could have potentially changed the overall dynamics of the transaction, given that our investment team has not been able to secure insurance for the proposed POB issuance.

Fortunately, after a thorough review, S&P this past week provided our proposed POB issuance with a AA- rating, and also assigned an overall credit rating of AA for the City.  This is terrific news and makes Monrovia a High Grade (AA- / AA / AA+) investment opportunity!  In their summary report, S&P indicated that, “the stable outlook reflects our view of management’s proactive approach to its pension liabilities.”  Furthermore, S&P outlined that their rating of the City and our POB issuance reflected the following:

-Very strong economy, with access to a broad and diverse metropolitan statistical area (MSA);

-Very strong management, with strong financial policies and practices under our Financial Management Assessment (FMA) methodology;

-Strong budgetary performance, with operating surpluses in the general fund and at the total governmental fund level in fiscal 2016;

-Strong budgetary flexibility, with an available fund balance that we expect will decrease in the near term from its fiscal 2016 level of 18 percent of operating expenditures;

-Very strong liquidity, with total government available cash at 82.6 percent of total governmental fund expenditures and 16.5x governmental debt service, and access to external liquidity we consider strong;

-Very weak debt and contingent liability position, with debt service carrying charges at 5 percent of expenditures and net direct debt that is 307 percent of total governmental fund revenue; and

-Strong institutional framework score.

Also, by way of background, for every refinance or bond deal conducted, financial rating agencies – like S&P – will review the overall fiscal health of the City, along with explicit details related to the proposed transaction, to provide an overall bond rating for each deal.  The better the bond rating received by the City, the better the interest rates that we will receive from the financial markets.  And the better the interest rates received, the more money that Monrovians ultimately save.

After conducting their most recent financial review with City staff and our underwriters, S&P this past week notified us that the City’s bond rating for our CalPERS Response Plan pension debt refinance transaction was assigned a High-Grade Investment rating of AA-!  Furthermore, S&P affirmed that the City’s overall credit rating was AA / stable!

This is a terrific accomplishment for the City, and the entire community should be proud of the achievement!  It wasn’t that long ago that securities from the City were considered lower medium grade investments in the BBB- to BBB+ range… kudos to all those involved – from the City Council, to the finance team in the Administrative Services Department, to each department’s prudent fiscal management – for managing Monrovia’s finances in such a superb manner!

View the copies of the rating reports issued by S&P at Monrovia Weekly.com.

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