A 10-Notch Down­grade in Mis­souri

The Bond Buyer - - Front Page - By yvette ShieldS

CHICAGO – A Mis­souri county board’s in­ten­tion to can­cel a bud­geted ap­pro­pri­a­tion needed for an up­com­ing debt ser­vice pay­ment trig­gered a 10-notch down­grade.

The Platte County board had ap­pro­pri­ated in its cur­rent bud­get funds to make up for a short­fall in pledged rev­enues for the 2007 Zona Rosa Re­tail project bonds. About $29 mil­lion is still out­stand­ing from the orig­i­nal $32 mil­lion is­sue.

But dur­ing an Au­gust 20 public meet­ing board com­mis­sion­ers “ac­tively dis­cussed and ver­bally con­veyed that the county board would stop ap­pro­pri­at­ing” for the bonds “un­less they found a longterm sus­tain­able solution that did not in­volve the county an­nu­ally bud­get­ing for debt ser­vice,” S&P Global Rat­ings said.

The county also has con­sulted with its bond coun­sel on the “le­gal­ity of non-ap­pro­pri­a­tion,” S&P added.

S&P slashed the rat­ing on the Platte County In­dus­trial De­vel­op­ment Au­thor­ity bonds for Zona Rosa deep into junk Sept. 7, to B-mi­nus from A. The bonds were orig­i­nally rated AA-mi­nus based on the strength of the county’s

guar­anty sub­ject to an­nual ap­pro­pri­a­tion.

“We view this as a will­ing­ness is­sue rather than the abil­ity to pay,” S&P wrote, given the county’s healthy bal­ance sheet and tax­ing flex­i­bil­ity.

If the ap­pro­pri­a­tion is can­celed Mu­nic­i­pal Mar­ket An­a­lyt­ics warned of a wide­spread credit im­pact for the county and a po­ten­tial in­vestor chill across the state for ap­pro­pri­a­tion cred­its.

“S&P re­ports that the county is in strong fi­nan­cial and eco­nomic con­di­tion, but MMA as­sumes cat­a­strophic down­grades for all Platte County se­cu­ri­ties should the IDA bonds de­fault,” MMA wrote in its weekly com­men­tary. “Fur­ther, MO ap­pro­pri­a­tion bonds gen­er­ally could see weaker price trends, par­tic­u­larly if mar­ket wide yields be­gin to rise.”

S&P does not rate the county or any other county-sup­ported debt, ac­cord­ing to an­a­lyst Blake Yo­com.

Platte County does carry a Aa2 rat­ing from Moody’s In­vestors Ser­vice. Moody’s last is­sued a re­port on the county in Novem­ber. “The fi­nan­cial po­si­tion of the county is very healthy and is rel­a­tively fa­vor­able with re­spect to the as­signed rat­ing of Aa2,” its re­port said.

While S&P said it’s con­cerned about the sta­tus of the De­cem­ber pay­ment, it has more long-term ques­tions as the bonds don’t ma­ture un­til 2032. “If they are al­ready con­tem­plat­ing fail­ing to ap­pro­pri­ate this year what are they go­ing to do ev­ery year?” Yo­com said. “The board’s long-term com­mit­ment is highly ques­tion­able af­ter the Aug. 20, 2018, meet­ing.”

In ad­di­tion to the deep cut, S&P put the rat­ing on Cred­itWatch pend­ing con­fir­ma­tion of what ac­tion the three-mem­ber county com­mis­sion in­tends to take on the De­cem­ber pay­ment. With­out the ap­pro­pri­a­tion, the bonds would de­fault, so if the rat­ing agency con­firms a non-ap­pro­pri­a­tion it would lower the rat­ing to CC which warns of loom­ing de­fault.

“If man­age­ment cor­rects course, and proac­tively dis­plays a com­mit­ment to an­nu­ally ap­pro­pri­ate for the series 2007 Zona Rosa bonds through 2032 and makes the 2018 pay­ment, the rat­ing could see mar­ginal, and likely in­cre­men­tal, im­prove­ment in the fu­ture,” S&P said.

The IDA has is­sued more than $100 mil­lion in bonds for var­i­ous projects. The au­thor­ity de­clined to com­ment on S&P’s ac­tion and re­ferred calls to bond trustee UMB Bank.

The bonds had been trad­ing at full value ahead of the late Fri­day down­grade but showed no re­cent trade data.

The 2007 Zona Rosa bonds are spe­cial obli­ga­tions of the au­thor­ity payable solely from a por­tion of the Trans­porta­tion De­vel­op­ment District rev­enues ap­pro­pri­ated by the district and amounts ap­pro­pri­ated in each fis­cal year by Platte County from legally avail­able funds.

De­vel­oper pay­ments and sales tax col­lected in the shop­ping cen­ter in the Kansas City sub­urbs go to re­pay debt. The project has strug­gled with high va­cancy rates for sev­eral years but pledged rev­enues cov­ered debt ser­vice un­til last year.

The de­vel­oper last year failed to make its $500,000 an­nual pay­ment so the trustee drew on a let­ter of credit to cover debt ser­vice. The trustee has not re­newed the let­ter of credit and the de­vel­oper’s strug­gles con­tinue; it is now in de­fault on its mort­gage.

Sales tax col­lec­tion in the de­vel­op­ment district aver­ages about $1.5 mil­lion a year and the county has es­ti­mated that by fis­cal 2026 it need to ap­pro­pri­ate $1.5 mil­lion in legally avail­able funds, up from $634,000 in fis­cal 2018, if taxes don’t grow.

Debt ser­vice on the bonds es­ca­lates through ma­tu­rity.

“That fac­tor, along with mostly flat salestax per­for­mance in re­cent years, and a de­vel­oper that is no longer mak­ing con­tri­bu­tions as ini­tially in­tended, fur­ther weak­ens our view of the in­tended pay­ment source,” S&P said, adding it views the bonds as be­ing a weak com­mit­ment for the county as the project is not a ba­sic func­tion or pur­pose.

S&P cut the Mis­souri city of Moberly, for reneg­ing on its ap­pro­pri­a­tion pledge in 2011 to sup­port bonds is­sued for a failed ar­ti­fi­cial sweet­ener plant. The city would have strug­gled to meet the obli­ga­tion that was later the sub­ject of lit­i­ga­tion against the de­vel­oper and fi­nance team.

The city won back its in­vest­ment grade ear­lier this year.

The af­flu­ent Chicago sub­urb of Lom­bard, Illi­nois also sunk to junk for its un­will­ing­ness de­spite a healthy bal­ance sheet to make good on its ap­pro­pri­a­tion pledge for a strug­gling ho­tel con­fer­ence cen­ter debt that later be­came the sub­ject of a Chap­ter 11 bank­ruptcy.

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