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Rating Action:

MOODY'S ASSIGNS MIG 1 RATING TO CITY OF TOLEDO'S (OH) $15.12 MILLION CAPITAL IMPROVEMENT GOLT BOND ANTICIPATION NOTES, SERIES 2011

05 Oct 2011

AFFIRMS A2 RATING AND STABLE OUTLOOK ON $137.4 MILLION OF OUTSTANDING LONG-TERM GOLT DEBT

New York, October 05, 2011 -- Moody's Rating

Issue: Capital Improvement Notes, Series 2011 (General Obligation Limited Tax Bond Anticipation Notes); Rating: MIG 1; Sale Amount: $15,115,000; Expected Sale Date: 10/18/2011; Rating Description: GOLT Bond Anticipation Notes

Opinion

Moody's has assigned a MIG 1 rating to the City of Toledo's (OH) $15.12 million Capital Improvement Notes, Series 2011 General Obligation Bond Anticipation Notes (Limited Tax Bonds). Concurrently, we have affirmed the A2 rating and stable outlook on $137.4 million of outstanding long-term general obligation debt.

SUMMARY RATINGS RATIONALE

The current offerings are secured by the city's General Obligation Limited Tax pledge, subject to the State of Ohio's ten- mill limitation. Proceeds of the Notes will retire the Series 2010-2 notes, which mature on October 27, 2011. City management expects to pay down approximately $2.1 million on the maturing Notes, which were originally issued to finance the costs of acquiring motor vehicles and capital equipment. In addition, approximately $3.1 million of new money is provided in the issuance to finance various infrastructure improvements. Authorization for the take out financing is based on the original authorizing resolution, allowing the city to roll the notes, or issue long-term debt. Many Ohio cities keep a portion of their debt in notes in order to access more favorable short-term rates and to allow for flexibility to pay down principal upon annual renewal of the notes. The MIG 1 rating is based on expected ability to take out the notes at maturity through market access or alternate plans, a history of successful marketing of notes as bonds, and the credit quality reflected in the city's A2 rating and stable outlook. The A2 rating reflects the city's challenged, though improving, financial position marked by a deficit General Fund position at the close of fiscal 2010; large tax base in northwest Ohio (rated Aa1/ negative outlook) with exposure to the domestic automotive sector and weak demographic trends including population loss and high unemployment; and healthy debt position that benefits from conservative management. The stable outlook reflects our expectation the city will continue to reduce the General Fund deficit position in the current fiscal year and successfully maintain balanced operations, allowing the city to begin rebuilding reserves over time. Additionally, Toledo's economy is expected to continue to benefit from the stabilizing presence of the healthcare and higher education sectors as well as continued diversification from its historic dependence on heavy manufacturing.

STRENGTHS:

Sizable tax base and economic hub in the northwest Ohio

Recent implementation of both revenue enhancements and expenditure reductions

CHALLENGES:

Significant exposure to economically sensitive income tax

Deficit General Fund balance position

Outlook

The stable outlook on the city's long-term ratings is based on recent actions to rebuild the city's financial position. Like many Ohio cities, Toledo is dependent on economically sensitive income taxes for its operating and capital needs. As such, the maintenance of adequate reserves to offset economic declines is critical to the stabilization of financial operations. Recent growth and diversification in the city's employment base should help stabilize the income tax revenues from the downward trajectory experienced in 2008 and 2009. The city remains confident that income tax collections will reach the $153 million target for the year; however, negative budget variances in FY2011 current fiscal year could pose further challenges that will continue into FY2012, the budget gap for which has yet to be addressed. We believe that continued efforts to restore structural balance and rebuild liquidity in line with the city's long-term goal to establish a Budget Stabilization Fund equivalent to 5% to 8% of annual expenditures will be critical to maintaining a financial profile consistent with the current rating.

What would change the rating UP (or revise the outlook to positive)-

Improved performance of key revenue streams that will allow the city to record an operating surplus exceeding current budget expectations.

Demonstrated ability to continue making long-term budgetary changes to mitigate expenditure pressures.

Continued enhancement of revenue streams within the city's control to provide adequate resources for the level of services currently being maintained.

Increased liquidity to provide adequate cushion to offset unforeseen negative budget variances.

Continued diversification of top employers to mitigate concentration in any one employer or industry.

What would change the rating DOWN (or revise the outlook to negative)-

Negative budget variances leading to further decline in the General Fund deficit position.

Inability to sustain long-term budgetary adjustments sufficient to improve overall financial position and the ability to absorb future budgetary challenges.

Further stagnation of local economic trends with limited growth or continued decline in income tax collections.

Indications that economic health is further declining, as demonstrated by continued population loss, higher unemployment rates, and residential housing losses.

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Mark G. Lazarus
Analyst
Public Finance Group
Moody's FIS Domestic Sales Office - Chicago IL

JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Henrietta Chang
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S ASSIGNS MIG 1 RATING TO CITY OF TOLEDO'S (OH) $15.12 MILLION CAPITAL IMPROVEMENT GOLT BOND ANTICIPATION NOTES, SERIES 2011
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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