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Rating Action: Moody's assigns Aa2 to St. Charles, MO's Neighborhood Improvement District GOLT Bonds, Series 2022Global Credit Research - 06 Jan 2022New York, January 06, 2022 -- Moody's Investors Service has assigned a Aa2 rating to the City of St. Charles, MO's $3.5 million Neighborhood Improvement District Limited General Obligation Bonds (New Town Merz Project), Series 2022. Concurrently, Moody's has affirmed the Aa2 rating on the city's unlimited and limited general obligation debt and the Aa3 rating on lease appropriation debt. Post sale, the city will have $25.6 million in general obligation unlimited tax (GOULT) debt, $24.9 million in general obligation limited tax (GOLT) debt, and $120.9 million in certificates of participation outstanding.RATINGS RATIONALEThe Aa2 general obligation unlimited tax (GOULT) rating incorporates the city's long-term trend of stable financial operations and strong operating reserves supported by a large and growing tax base and above average resident income indices. The strong operating reserves largely mitigate the city's reliance on economically sensitive sales tax revenue and gaming receipts. Additionally, a large portion of the city's operating reserves are property tax and interfund receivables, which results in a liquidity position that is materially weaker for the rating category. The rating also incorporates the city's above average debt and moderate pension obligations.The lack of distinction between the Aa2 GOULT and GOLT debt ratings reflects the irrevocable pledge of the city's full faith, credit and resources to the payment of outstanding GOLT bonds, including the Series 2022 bonds.The Aa3 rating on the lease appropriation debt reflects a one notch distinction from the city's Aa2 general obligation unlimited tax (GOULT) rating incorporating the city's fundamental credit quality, the risk of non-appropriation, and the more essential nature of the financed projects or leased assets.RATING OUTLOOKMoody's does not generally assign outlooks to local government credits with this amount of debt outstanding.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improved liquidity relative to operating revenue- Material reduction of debt- Upgrade of the city's GOULT rating (lease appropriation)FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Significant erosion of operating reserves- Material expansion of leverage via debt or growth of unfunded pension liability- Downgrade of the city's GOULT rating (lease appropriation)LEGAL SECURITYThe city's GOULT bonds are general obligations of the city payable from ad valorem taxes which may be levied without limitation as to rate or amount upon all taxable tangible property, real and personal, within the territorial limits of the city.The city's GOLT bonds, including the Series 2022 bonds, are payable from special assessments against real property benefited by the construction of certain infrastructure improvements, and if not so paid, from funds in the respective bond reserve funds, and, if necessary, the current income and revenues and surplus funds of the city. The full faith, credit and resources of the city are irrevocably pledged under the bond ordinance for the prompt payment of the principal and interest of the bonds, however, the city is not authorized to impose any new or increased ad valorem property tax to pay the bonds without voter approval.The city's lease appropriation bonds are payable from basic rent to be made by the city under the respective lease. The obligation to pay rent under the lease constitutes currently budgeted expenditures of the city, payable only if the City Council appropriates sufficient money to extend the term of the lease for each successive year. The city is not obligated to levy any form of taxation or to make appropriation for the payment in any fiscal year subsequent to a fiscal year in which a lease is in effect. The city has covenanted to pay Basic Rent Payments no later than five business days prior to each due date, so long as the city elected to renew the lease. Each renewal term is subject to annual appropriation by the city council.USE OF PROCEEDSThe bonds will provide for infrastructure improvements constructed within the New Town Merz Neighborhood Improvement District. Currently, the developer owns all real property within the 87.6 acres district and intends to develop no more than 850 housing units, including detached single-family homes, cottages, row homes, live-work units, apartments and other multi-family buildings. Construction of housing units is expected to begin in September 2022 with single-family homes ranging from 1,000 to 5,000 square feet and a starting price of approximately $325,000.PROFILEThe City of St. Charles is located in central Missouri (Aaa stable) on the Missouri River and is the county seat of St. Charles County. The city is located approximately 20 miles west of the City of St. Louis (A3 stable) and has a diversified economy with an established residential community, several industries and an active tourism industry. The city's population as of the 2020 US Census was 70,493.METHODOLOGYThe principal methodology used in the general obligation ratings was US Local Government General Obligation Debt published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260094. The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments Methodology published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1298498. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. Kenneth Surgenor Lead Analyst REGIONAL_SOUTHWEST Moody's Investors Service, Inc. 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