New York, February 15, 2017 -- Issue: Special Obligation Bonds, Series 2017B; Rating: A1; Rating Type: Underlying LT; Sale Amount: $15,185,000; Expected Sale Date: 02/20/2017; Rating Description: Lease Rental: Appropriation;
Issue: Special Obligation Refunding Bonds, Series 2017C; Rating: A1; Rating Type: Underlying LT; Sale Amount: $90,000,000; Expected Sale Date: 02/20/2017; Rating Description: Lease Rental: Appropriation;
Issue: Special Obligation Refunding Bonds, Series 2017D; Rating: A1; Rating Type: Underlying LT; Sale Amount: $16,520,000; Expected Sale Date: 02/20/2017; Rating Description: Lease Rental: Appropriation;
Issue: Taxable Special Obligation Bonds, Series 2017A; Rating: A1; Rating Type: Underlying LT; Sale Amount: $31,940,000; Expected Sale Date: 02/20/2017; Rating Description: Lease Rental: Appropriation;
Summary Rating Rationale
Moody's Investors Service has affirmed the City of Kansas City's (MO) General Obligation and Special Obligation appropriation backed ratings at Aa2 and A1, respectively. Concurrently, we have assigned an A1 rating to the Special Obligation Bonds, Series 2017 A to D. The bond sales include $31.9 million Taxable Series 2017A, $15.2 million Series 2017B, $90 million Refunding Series 2017C and $16.5 million Refunding Series 2017D. The outlook is revised to negative.
Affirmation of the Aa2 General Obligation rating reflects the city's high debt profile and future issuance plans coupled with a significantly elevated pension liability. The rating further considers strength in the city's large and stable tax base, average socioeconomic profile, and stable financial performance supported by diverse, though economically sensitive, revenue streams, prudent fiscal management practices, and adequate reserve levels, as well as liquidity available outside the General Fund.
The A1 rating on the city's Special Obligation Bonds and appropriation-backed debt reflects the city's fundamental credit quality, the risk of non-appropriation, the lack of pledged assets securing the debt, and the less essential nature of the projects financed.
The negative outlook reflects the growth of the city's pension obligation and, when coupled with the elevated debt burden, the increase of fixed costs outpacing revenue growth. Continued leveraging of the tax base or unabated expansion of the pension obligation will place downward pressure on the rating.
Factors that Could Lead to an Upgrade or Removal of Negative Outlook
Significant mitigation of the city's debt and pension burdens
Sustained trend of surplus operations that lead to growth in the city's fiscal reserve levels
Factors that Could Lead to a Downgrade
Further leveraging of the city's tax base absent corresponding revenue increases
Continued growth of the city's unfunded pension liabilities
Weak financial performance leading to a decline in reserves
The Series 2017A&B Bonds are payable only from moneys which have been annually appropriated by the City to pay the principal of and interest due on the bonds.
The Series 2017C Bonds are payable only from appropriated moneys and from certain State Sales Tax Increment or State Income Tax Increment attributable to the Kansas City Downtown Redevelopment District Project when disbursed by the Missouri Department of Economic Development (DESA).
The Series 2017D Bonds are payable only from appropriated moneys, from certain Payments in Lieu of Texas from the Midtown Redevelopment Area and, when appropriated by the City or the State of Missouri as applicable, Economic Activity Taxes, Super TIF Revenues and State TIF Revenues collected in the Midtown Redevelopment Area.
Use of Proceeds
Proceeds of the 2017A Bonds will fund various capital projects, a debt service reserve fund for the Series 2004B-1 Bonds, and to pay capitalized interest on the 2017A Bonds.
Proceeds of the 2017B Bonds will fund various capital projects and will refinance certain capital costs associated with the creation of an Assessment Triage Center to serve people with a mental or substance use disorder which was originally financed with the Series 2014D Bonds.
Proceeds of the 2017C Bonds will advance refund the Refunded Series 2005A Bonds in full.
Proceeds of the 2017D Bonds will current refund the Refunded Series 2007A Bonds in full.
The City was incorporated on June 3, 1850. The City is the central city of a 14-county Metropolitan Statistical Area in the State of Missouri and the State of Kansas. The City is situated at the confluence of the Kansas and Missouri rivers. The estimated population in 2015 was 477,146.
The principal methodology used in this rating was US Local Government General Obligation Debt published in December 2016. The additional methodology used in the lease-backed rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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 prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Regional PFG Dallas
Moody's Investors Service, Inc.
Plaza Of The Americas
600 North Pearl St. Suite 2165
Regional PFG Dallas
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007