unofficial informal briefing minutes tuesday, february 7 ... · unofficial . informal briefing...
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Unofficial Informal Briefing Minutes
Tuesday, February 7, 2017 - 10:30 AM Present: Charlotte J. Nash, Jace Brooks, Lynette Howard, Tommy Hunter, John Heard
1. Financial Services Rating Agencies Update
Financial Service Director/Chief Financial Officer Maria Woods provided a history of Gwinnett County’s ratings and an overview of rating categories and agencies. No Official Action Taken.
Credit Rating Scale
Moody’s Fitch Standard & Poor’s
Highest Quality Aaa AAA AAA
High Quality Aa1 Aa2 Aa3 AA+ AA AA- AA+ AA AA-
Upper Medium Grade A1 A2 A3 A+ A A- A+ A A-
Medium Grade Baa1 Baa2 Baa3 BBB+ BBB BBB- BBB+ BBB BBB-
Speculative Grade Ba1 Ba2 Ba3 BB+ BB BB- BB+ BB BB-
Very Speculative Grade B1 B2 B3 B+ B B- B+ B B-
Substantial Risks – in default
Caa1 Caa2 Caa3 Ca
CCC CC C RD D
CCC+ CCC CCC- CC C D
INVE
STM
ENT
GRA
DE
NO
N IN
VEST
MEN
T G
RADE
“J
UN
K” B
ON
DS
If Our Bond Rating Had Been Single A …
…we would have paid more than $50 million dollars in additional interest on bonds that were issued between 2008 and 2017.
Rating Agency Role
• Assessment of the ability to pay back financial obligations
• Ability to pay back obligations = creditworthiness
• Based on an analytical model
• Relative ranking of risk
• Subjective judgment
• Prediction – not a guarantee
What do they look for?
30%
30%
30%
10%
Standard & Poor’s Rating Factors
Economy/Tax Base FinancesManagement & Institutional Debt
Fitch’s Comments
» Strong revenue and expenditure flexibility
» Maintenance of healthy reserves
» Low long-term liability burden
» Prudent fiscal management through conservative budgeting without the use of reserves
Fitch’s scenario analysis highlights the county’s exceptional financial resilience, benefiting from the county’s solid reserves and superior budget flexibility, despite the sizable revenue volatility of 4.5% depicted by Fitch’s analytical sensitivity tool. Fitch believes that the county would maintain reserves at a level that would be consistent with a ‘aaa’ financial resilience assessment in the event of a future economic downturn.
Moody’s Comments Credit Strengths » Strong fiscal position bolstered by formal financial policies and conservative
budgeting » Low debt and pension burdens » Large tax base with strong socioeconomic factors
Credit Challenges » Socioeconomic metrics have declined in recent decades as population
expands
Factors that Could Lead to a Downgrade » Significant tax base deterioration » Marked decline in reserves and cash due to ongoing structural imbalance
S&P Global’s Comments » Adequate economy » Very strong management, with strong financial policies and practices » Strong budgetary performance » Very strong budgetary flexibility » Very strong liquidity » Very strong debt and contingent liability position » Very strong institutional framework score » If financial performance were to experience sustained deterioration, leading
to significant declines in reserves, we could lower the rating » Eligible for a rating above the sovereign because we believe the county can
maintain better credit characteristics than the nation in a stress scenario
U. S. Rating
Upgrade for US rating not in the cards: S&P Wednesday, 11 Jan 2017 | 4:14 AM ET | 02:25
Moody’s 2017 Outlook for US Local Governments
• Healthy Property Tax Growth
• Stable, healthy reserves highlight strong management and provide flexibility
• Growing balance sheet liabilities and fixed costs continue to pressure operations but remain manageable
• Compounding pressures are deteriorating credit quality for a small group
Source: Moody’s Investor Services, Local Government - US 2017 Outlook – Strong Tax Revenues and Healthy Reserves Drive Stability for Most December 7, 2016
Signs of Deteriorating Credit Quality
Source: Moody’s Investor Services, Local Governments - US 2017 Outlook – Strong Tax Revenues and Healthy Reserves Drive Stability for Most December 7, 2016
“A still modest but growing portion of issuers - about 5% to 10% - face compounding pressures and credit challenges, but overall the sector in general remains stable.”
Revenue stagnation + Fixed Cost Growth = Trend of Credit Deterioration
Weak Economic Trends
Falling property values
Poor demographic and employment trends
Low wealth levels
Limited economic or industrial development prospects
Revenue and Reserve Challenges
Tax caps or other legal limits on revenue raising
Anti-tax sentiment, high rates or demographic profile eroding political willingness to raise rates
Heavy reliance on state aid and vulnerability to cuts
Declining, limited, or no reserves
Weak revenue trends
Expenditure Pressures
Limited legal ability to cut expenditures
Rising fixed costs
Few expenditure cuts available
Deteriorating infrastructure with acute need to invest
States shifting costs to local governments
A City in Mississippi
Credit Characteristics Low wealth levels Anti-tax sentiment, high rates or
demographic profile eroding political willingness to raise rates
Declining, limited or no reserves Deteriorating infrastructure with acute need
to invest Rising fixed costs
Baa2
NEGATIVE
History of Rating
2010 2013 High Quality Aa2
2015 Upper
Medium Grade
A3 -
2016 Medium Grade Baa2 -
Value of Triple-AAA Debt Service Savings Refunding Bonds
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2011 2012 2013 2014 2014 2016 2017
In Millions
Water & Sewer Authority GO Bond Dev Authority
$80.3 million
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