Rating Action: Moody's assigns A2 to Lake Worth Beach's (FL) $27.8M non-ad valorem bonds
Global Credit Research - 23 Jul 2020
New York, July 23, 2020 -- Moody's Investors Service has assigned A2 ratings to the City of Lake Worth Beach, FL's $10.7 million Non-Ad Valorem Revenue Bonds, Series 2020A and $17.1 million Non-Ad Valorem Revenue Bonds, Taxable Series 2020B. Concurrently, Moody's has affirmed the A1 rating on the outstanding general obligation unlimited tax (GOULT) bonds.
RATINGS RATIONALE
The A2 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 GOULT rating of A1 represents the more limited pledge of non-ad valorem revenues, which the city is obligated to budget and appropriate annually.
The A1 GOULT rating reflects the city's above average and expanding tax base, stable financial position with satisfactory reserves and liquidity, manageable debt burden, and elevated pension liabilities and fixed costs.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Lake Worth Beach, FL is not susceptible to immediate material credit risks related to coronavirus. The longer-term impact will depend on both the severity and duration of the crisis. The situation surrounding coronavirus is rapidly evolving. If our view of the credit quality of the city changes, we will update the rating and/or outlook at that time.
RATING OUTLOOK
Outlooks are not usually assigned to local governments with this amount of debt outstanding.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Material increase in financial reserves and liquidity (GOULT rating)
- Improved wealth and income levels (GOULT rating)
- Upgrade of GOULT rating (non-ad valorem bonds)
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material tax base deterioration (GOULT rating)
- Reduction in reserves or liquidity (GOULT rating)
- Significant increase in debt or capital needs (GOULT rating)
- Increased unfunded pension liabilities (GOULT rating)
- Downgrade of GOULT rating (non-ad valorem bonds)
- Decline in available non-ad valorem revenues (non-ad valorem bonds)
LEGAL SECURITY
The non-ad valorem bonds are secured by the City of Lake Worth Beach's covenant to budget and appropriate legally-available non-ad valorem revenues to make debt service payments through the life of the bonds. Legal provisions include an anti-dilution test that requires the two year average of available non-ad valorem revenues (net of essential services) to exceed 150% MADS on all obligations supported by non-ad valorem revenues.
The GOULT bonds are secured by the city's unlimited general obligation pledge.
USE OF PROCEEDS
Proceeds from the 2020A bonds will be used to fund various capital projects for the general government ($6 million), and stormwater ($2.4 million), solid waste ($525,000), electric ($150,000) and sewer ($1.4 million) funds.
Proceeds from the 2020B bonds will be used to reimburse the government for capital projects completed prior to the bond issue.
PROFILE
The City of Lake Worth Beach is located in Palm Beach County (Aaa stable) on the Atlantic coast and has an estimated population of 37,000.
METHODOLOGY
The principal methodology used in the general obligation ratings was US Local Government General Obligation Debt published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1191097. The principal methodology used in the non-ad valorem ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Nisha Rajan Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Valentina Gomez Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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