New York, January 06, 2021 -- Moody's Investors Service has assigned a Aa3 rating to the City of Birmingham, AL's $13.1 million General Obligation Warrants (Federally Taxable), Series 2020-C, $28.9 million General Obligation Warrants, Series 2021-A and $3.6 million General Obligation Warrants (Federally Taxable), Series 2021-B. Concurrently, Moody's maintains the Aa3 issuer rating and Aa3 general obligation limited tax (GOLT) rating on the city's outstanding parity debt. The outlook remains negative.
The issuer rating reflects Moody's assessment of the city's implied unlimited general obligation pledge, however no debt is associated with this security. The pledge supporting the city's outstanding GO debt is limited based upon Alabama's (Aa1 stable) constitutional property tax limits.
RATINGS RATIONALE
The Aa3 issuer rating reflects continued growth of the city's pension liabilities, primarily the result of the historical annual underfunding of pensions. The city has increased its funding over the last year and continued to do so in the fiscal 2021 budget. The Aa3 rating also takes into consideration a diverse and regionally significant economy located in central Alabama as well as a solid financial position marked by healthy reserve levels. Debt levels are moderately above-average but remain affordable given ongoing tax base growth.
The absence of distinction between the Aa3 rating on the city's GOLT debt (including GOLT backed debt of the Birmingham-Jefferson Civic Center (BJCC)) and the city's Aa3 issuer rating is based on the city's pledge of its full faith and credit.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Birmingham is not susceptible to immediate material credit risks related to coronavirus. The longer term impact will depend on both the severity and duration of the crisis. The situation surrounding coronavirus is rapidly evolving. If our view of the credit quality of the city changes, we will update the rating and/or outlook at that time.
RATING OUTLOOK
The negative outlook reflects the expectation that the city will be challenged over the near-term to sustain recent pension funding improvements, as well as continue to increase future funding in order to minimize long-term growth of the liability.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Sustained improvement in pension funding
- Decreases in debt burden
- Sizeable increases in General Fund balance
- Improved socio-economic factors
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Continued underfunding of pensions and growth in overall liability
- Sizeable increases in debt burden
- Declines in reserves, both in the General Fund and other available funds
- Deterioration in tax base size or quality
LEGAL SECURITY
The city's Series 2020-C Warrants, 2021-A&B Warrants and outstanding GOLT debt, are considered general obligations of the city, the payment of which is secured by the full faith and credit pledge of the city.
USE OF PROCEEDS
Proceeds from the Series 2020-C Warrants will be used to finance various commercial development projects.
Proceeds from the Series 2021-A Warrants will be used to finance various capital improvements, including infrastructure, public parks and related facilities.
Proceeds from the Series 2021-B Warrants will refund a portion of the city's outstanding Series 2014-B Warrants associated with parking improvements.
PROFILE
The City of Birmingham is located in Jefferson County (A3 stable) and is the largest city in the state of Alabama with an estimated population of 212,021 (2018 American Community Survey).
METHODOLOGY
The principal methodology used in these ratings was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Christopher Coviello
Lead Analyst
Regional PFG Northeast
Moody's Investors Service, Inc.
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Douglas Goldmacher
Additional Contact
Regional PFG Northeast
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Client Service: 1 212 553 1653
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