Updated: Bond Rating on Aquatic Faclity Bond is AA-

UPDATED: March 21, 2012
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Yesterday, we received the following media release from the town.

"ORO VALLEY, Ariz. (March 19, 2012) - Standard & Poor’s rating agency has reaffirmed the Town of Oro Valley’s strong “AA-“rating on the Series 2012 Excise Tax Revenue Obligations to fund the Town’s aquatic facility enhancements.

“We are pleased to receive this strong investment grade rating that reflects the sound fiscal condition of the Town,” said Finance Director Stacey Lemos. “This will contribute to our ability to issue these obligations at historically-low interest rates, resulting in lower borrowing costs for the aquatic facility enhancements project.”

Town finance staff is making preparations to sell these obligations at market."

AA- means that the town's credit rating is somewhere between very strong and strong in terms of it being able to meet its financial commitments.

According the S&P, the basis of this rating is:

"The ratings reflect our view of the town's:

• Above-average income levels and growing local retail and service base with close proximity to the Tucson metropolitan area;
• Good bond provisions, with a rate covenant and additional bonds test (ABT) of 2.0x; and 
• Strong coverage of pro forma maximum annual debt service (MADS) and a low likelihood of issuing additional bonds to reach the 2.0x ABT, given that excise tax revenues represent the largest source of general fund revenues.

These strengths are offset by our view of the town's:

• Moderate concentration in retail sales tax revenue, representing close to 24% of pledged revenues;
• Thirty-percent decline in pledged revenues since 2007; and
• Relatively small population base of 41,000 in 2010 that grew in line with the state's population growth based on the 2010 Census."

(Source: S&P Rating Document)

This is good news for investors at a time when many municipalities, like Harrisburg Pa, or most of the towns in California, are struggling to meet their obligations.

It is also good news for all of us in that the town will pay a relatively low interest rate on debt at a time when interest rates are at a point where they will never be lower.  So, when the town issues its bonds to finance the aquatic facility, the debt service on these bonds will be as low as one can envision.

The aquatic facility bond issue is very small ($2 Million) in relation to the size of issues in the marketplace. 
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