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24 Mar 2020
New York, March 24, 2020 -- Moody's Investors Service has assigned a Aaa rating to the Town of Gilbert, Arizona's $74.3 million General Obligation and General Obligation Refunding Bonds, Series 2020. Concurrently, Moody's affirms the Aaa ratings on the town's $94.4 million in outstanding general obligation bonds (post-refunding), as well as the Aa1 ratings on the town's $62.5 million in outstanding senior lien excise tax bonds, the Aa1 ratings on the town's $35.0 million in subordinate lien excise tax bonds and Aa1 ratings on the town's improvement district bonds, current outstanding in the amount of $4.9 million. A stable rating outlook has been assigned.
The town's Aaa general obligation bond rating takes into consideration the town's large tax base that has grown rapidly in the last several years as well as strong socioeconomic measures. The town's financial profile is healthy, with a significant dependence upon economically sensitive sales tax revenue that is mitigated by substantial reserves and liquidity. Management is particularly strong, with prudent policies and practices that benefit its operations and finances. The town's debt burden is manageable, and it is making significant progress towards addressing its unfunded pension liabilities.
The Aa1 ratings on the town's senior lien and subordinate lien excise tax bonds reflect the town's strong and growing economic base, a recent historic trend of increasing pledged revenues, strong coverage of maximum annual debt service and satisfactory legal coverage. The absence of a distinction between the senior lien and subordinate lien bonds reflects the modest amount of subordinate debt outstanding with no borrowing against this lien planned in the near-term.
The Aa1 ratings for the town's improvement district bonds reflect our view of the general credit strength of the town, as well as the the statutory requirements for the town to foreclose on delinquent assessments, and if there is no purchaser, to appropriate from its general fund the amount of the assessment or delinquent installment.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The Town of Gilbert 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 Gilbert changes, we will update the rating and/or outlook at that time.
The stable outlook recognizes the town's large and diverse tax base, which is fundamentally sound, ample liquidity, and the strong financial and operational policies implemented by town's management.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Not applicable (general obligation bonds, improvement district bonds)
- Stronger bondholder protections such as closing the liens, higher additional bonds tests that minimize additional leverage and monthly segregation of funds (excise tax bonds)
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Deterioration of the city's financial position, including declines in reserves and liquidity
- Unanticipated and/or material weakening of the city's economy for a prolonged period of time
- Material increase in debt, pension or OPEB liabilities
- Significant declines in debt service coverage due to sharp decline in pledged revenue collections (excise tax)
The town's general obligation bonds are secured by its pledge to levy ad valorem taxes on all taxable property without limit on rate or amount under its secondary property tax rate. Revenues collected from the levy for general obligation bond debt service are held separately from all other revenues and can only be used by to pay principal and interest on the debt as well as related administrative expenses. Other than this levy, no other revenues or funds are pledged to repay bonds. Importantly, state legislation conveys lien on the debt service levy for general obligation bonds, a credit strength for bondholders.
USE OF PROCEEDS
The new money portion of the bonds will be used to acquire and construct a public safety training facility. The refunding portion of the bonds will be used to refund for savings the town's outstanding Series 2008 general obligation bonds.
Located in the southeastern portion of Maricopa County (Aaa stable), the town covers nearly 73 square miles and serves an estimated population of just under 250,000. The town operates under a council-manager for of government, with six council members and a mayor. The town council appoints a town manager that administers the town's functions, which include police and fire protection, municipal court, development services, environmental utilities, parks and recreation, and others.
The principal methodology used in the general obligation ratings and local improvement districts (other notched general government obligation, non-GO) ratings was US Local Government General Obligation Debt published in September 2019. The principal methodology used in the special tax ratings was US Public Finance Special Tax Methodology published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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