Also downgrades to Baa1 from A3 the county's $13.1 million Regional Off-Track Betting Corporation's revenue bonds
New York, October 23, 2012 -- Moody's has downgraded to A2 from A1 the rating on Nassau County's
(NY) $1.4 billion in outstanding general obligation debt
and revised the outlook to stable from negative. The debt is secured
by a general obligation pledge as limited by the Property Tax Cap -
Legislation (Chapter 97 (Part A) of the Laws of the State of New York,
2011). At this time, Moody's has also downgraded to Baa1
from A3 the long-term rating on $13.1 million of
the county's Regional Off-Track Betting Corporation's (NROTB) Revenue
Bonds.
SUMMARY RATINGS RATIONALE
The downgrade to A2 reflects further weakening of the county's financial
position in fiscal 2011 and the expectation that fund balance will continue
to decline in fiscal 2012. The rating also incorporates the county's
significantly reduced liquidity, weak governance practices,
and significant exposure to variable rate debt and interest rate swaps.
Positive factors supporting the A2 rating include: oversight of
the county's finances provided by the Nassau County Interim Finance Authority
(NIFA, sales tax revenue bonds rated Aa1, stable outlook)
which moved to a hard control board on January 26, 2011, a
large and wealthy tax base, and a manageable debt position.
The stable outlook reflects the expectation that the county's financial
position and liquidity will not deteriorate materially from their currently
weak levels.
The NROTB special obligation bonds are secured by payments made directly
to the Trustee by Nassau County pursuant to a Support Agreement.
The Support Agreement obliges the county to make payments for debt service
subject to annual appropriation. While the Support Agreement provides
satisfactory legal protections to bondholders, including a pledge
that the county executive will include the appropriation for this purpose
in the annual budget each year, the legislature is not legally required
to appropriate for this purpose. The Baa1 rating is linked to the
county's credit quality, and reflects appropriation risk and non-essentiality
of the financed asset.
STRENGTHS
-Large and diverse tax base which benefits from proximity to New
York City
-Strong socio-economic profile with above-average
personal wealth and income levels
-Oversight provided by the Nassau County Interim Finance Authority
(NIFA)
CHALLENGES
-Limited financial flexibility given narrowing liquidity,
modest financial reserves and a trend of structurally imbalanced operations
- Exposure to economically volatile sales tax revenues
- Exposure to credit market disruption given substantial variable
rate debt and swap portfolio, as well as dependence on substantial
cash flow borrowing to manage operations
Outlook
The stable outlook reflects the expectations that the county's financial
position will not experience significant additional declines and that
recent structural enhancements will provide long-term stability.
The NIFA wage freeze has also helped the county manage their financial
position and their oversight and requirement for multi-year budget
forecasts provides additional bond holder security. Additionally,
sales tax revenues have returned to pre-recession levels which,
coupled with NIFA set-asides expected to decline beginning in 2013,
are expected to provide significant budgetary flexibility.
WHAT COULD MAKE THE RATING GO UP:
- Audited fiscal 2012 results that show significant increases to
reserve levels
- Significant improvement in the county's net cash position
resulting in a decline in cash flow borrowing
-
WHAT COULD MAKE THE RATING GO DOWN:
- Weaker fiscal 2012 results and declines in reserve levels
- Declining net cash position or increased cash flow borrowing
further straining the county's liquidity
- Long-term significant declines in county tax base,
unemployment levels, or wealth indicators.
- Substantial increase in county's debt burden
- A 2013 budget that is highly reliant on one-shot revenues
and aggressive budget assumptions
The principal methodology used in this rating was General Obligation Bonds
Issued by U.S. Local Governments published in October 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Robert Weber
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Geordie Thompson
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
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New York, NY 10007
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SUBSCRIBERS: 212-553-1653
Moody's downgrades to A2 from A1 the rating on Nassau County's (NY) $1.4 billion in outstanding general obligation debt; outlook now stable
