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Rating Action:

Moody's downgrades to Aa1 from Aaa, Minneapolis' (MN) outstanding GOULT debt; outlook revised to stable

29 Jul 2013

Aa1 and stable outlook applies to $679M of outstanding GO bonds

New York, July 29, 2013 -- Moody's Investors Service has downgraded to Aa1 from Aaa, the rating on the City of Minneapolis' (MN) outstanding general obligation bonds. Moody's has also removed the rating from review for possible downgrade and the outlook has been revised to stable. The Aa1 rating and stable outlook apply to approximately $679 million of general obligation debt outstanding.

SUMMARY RATINGS RATIONALE

Debt service on the bonds is secured by the city's general obligation unlimited tax pledge. The Aa1 rating and stable outlook reflect the city's role as a regional economic center; consecutive years of valuation declines through 2012; well-managed financial operations with adequate reserve levels, moderating though above average debt burden, and outsized Moody's adjusted net pension liability (MANPL).

The city's rating was placed on review for downgrade due to its large adjusted net pension liability relative to its rating category as part of our new approach to analyzing state and local government pension liabilities. For further details please see the April 17, 2013 release of "Moody's announces new approach to analyzing state, local, government pensions; 29 local governments placed under review." The review has been completed with the downgrade of the city's general obligation rating to Aa1. We believe the Aa1 GO rating incorporates the city's sizeable adjusted net pension liability as well as the city's other long-term credit fundamentals.

STRENGTHS

* Role as a Midwestern economic center with a sizeable tax base that benefits from diverse employment opportunities and institutional stability in government, education, and health care

* Well-managed financial operations, including comprehensive multi-year planning and institutionalized reporting mechanisms

* Demonstrated willingness to increase property taxes and implement budgetary adjustments in order to maintain or replenish reserves despite revenue and expenditure pressures

* Relatively conservative debt portfolio with modest variable rate debt and no exposure to derivatives

CHALLENGES

* Property values have declined in each of the past six years, though are beginning to moderate

* Dependence on the State of Minnesota (general obligation rated Aa1/negative outlook) for a substantial portion of operating revenues

* Improving reserve levels, still below national medians

* Though declining, debt levels continue to exceed national medians

* Outsized Moody's adjusted net pension liability of 4.3 times fiscal 2012 operating revenues

* High fixed costs as percentage of operating expenditures

OUTLOOK

The stable outlook reflects the expectation that the city's tax base will strengthen in the long term as the city continues its role as the economic engine of the state, and that financial operations will remain healthy given strong management policies and positive performance despite revenues pressures.

What Could Change the Rating -- UP

* Resumed and sustained growth in city's tax valuations

* Significant decreases in fixed costs

What Could Change the Rating - DOWN

* Economic weakening that leads to increased unemployment or further declines in tax base valuation

* Budgetary pressures that lead to narrowing of reserves in the General Fund or other funds

* A relaxing of the city's strong financial management practices

* Significant increases in fixed costs

RATING METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by US Local Governments published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 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 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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Soo Yun Chun
Analyst
Public Finance Group
Moody's Investors Service, Inc.
100 N Riverside Plaza
Suite 2220
Chicago, IL 60606
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Thomas Aaron
Analyst
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 downgrades to Aa1 from Aaa, Minneapolis' (MN) outstanding GOULT debt; outlook revised to stable
No Related Data.
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