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04 May 2018
New York, May 04, 2018 -- Moody's Investors Service has downgraded to Baa2 from Baa1 the rating on the Land Clearance for Redevelopment Authority of the City of St. Louis, MO's (LCRA) $114.5 million of outstanding Annual Appropriation Redevelopment Revenue Bonds (National Geospatial-Intelligence Agency Site Improvement Project), Series 2017A and 2017B. The outlook on the bonds has been revised to stable from negative to reflect the city's revised outlook.
The downgrade of the LCRA's National Geospatial-Intelligence Agency (NGA) project revenue bonds results from the downgrade of the City of St. Louis' rating to Baa1 from A3. The Baa2 rating is capped at the lower of the fundamental special tax rating of the pledged revenues and the appropriation level of the City of St. Louis (general obligation Baa1 stable). The rating factors in the risk of non-appropriation by the City of St. Louis, given that pledged revenues are subject to annual appropriation by the City and State of Missouri (Aaa stable), and the requirement for the City to appropriate pledged revenues in order for the State to appropriate. The rating also incorporates the strong linkage between the LCRA and the City, and the essentiality of the project to both the City and State.
The rating is further supported by the extremely limited tax base upon which pledged revenues are derived, which solely includes the NGA West Campuses located in the City of St. Louis; the sufficiently broad nature of the pledged revenues, including the City's earnings tax revenues and the State of Missouri's withholding tax revenues generated at the NGA West Campuses; adequate legal provisions; and narrow debt service coverage provided by the pledged revenues.
The stable outlook reflects the outlook of the City of St. Louis' outlook given that the bond rating is currently capped at the city's appropriation rating level. For additional detail on the city's rating and outlook, refer to our press release dated May 2, 2018.
FACTORS THAT COULD LEAD TO AN UPGRADE
- An upgrade of the City of St. Louis' rating
- Strengthened legal provisions eliminating appropriation risk of the City
- Significant growth of pledged revenues providing higher debt service coverage
FACTORS THAT COULD LEAD TO A DOWNGRADE
- A downgrade of the City of St. Louis' rating
- Indications of declining essentiality of the NGA to the City, State, or Federal Government
- Material decline in the number of employees or average salary of employees at the NGA West Campuses, leading to a decline of pledged revenues and debt service coverage
The bonds are special limited obligations of LCRA payable solely from City and State NGA Revenues, subject to annual appropriations by the City of St. Louis and State of Missouri.
Pursuant to the Financing Agreement, the City agrees to transfer to the Trustee all City NGA Revenues, not to exceed $1.5 million per fiscal year. City NGA Revenues include an amount of City earnings tax revenues equivalent to the product of the estimated number of workers at the NGA West Campuses and the average salary of all workers multiplied by 1% (the City individual earnings tax rate). City NGA Revenues also include tax increment financing (TIF) revenues generated from the NGA site attributable to incremental sales and utility taxes.
Also pursuant to the Financing Agreement, the State agrees to transfer to the Trustee, subject to annual appropriation, State NGA Revenues equal to the greater of the following: $5.75 million in 2019 through 2023, $5.85 million in 2024, and $5.95 million thereafter, pursuant to the Indenture; or an amount of State NGA withholding tax revenues equivalent to 50% of the product of the estimated number of workers at the NGA West Campuses and the average salary of all workers multiplied by 3% (the effective withholding tax rate agreed upon by the State, City and LCRA). Annual appropriations by the State cannot exceed 100% of State NGA withholding tax revenues or the maximum amount of State NGA Revenues that would still result in a net positive fiscal impact.
The pledged revenues are set forth pursuant to the terms of the Financing Agreement between the City, the State, and the LCRA. Both the City and State have broad authority to request the appropriation of other revenues for payment of debt service should the pledged revenues be insufficient, but have not contractually committed themselves to do so.
LCRA was created by state statute and is a component unit of the City of St. Louis, created to promote and stimulate the rehabilitation, redevelopment, and renewal of blighted areas of the City.
The City of St. Louis, with an estimated population of roughly 316,000, is located in eastern Missouri along the Mississippi River and Illinois (Baa3 negative) border. The city is one of the largest metro areas in the state, is home to more than 8% of the jobs and 12% of the total wages in Missouri, and acts as a regional economic hub for the surrounding counties.
Missouri is the eighteenth largest US state by population (6.1 million in 2017). Its GDP ranks twenty-second among the states ($299 billion in 2016 current dollars).
The principal methodology used in these ratings was US Public Finance Special Tax Methodology published in July 2017. The additional methodology used in these ratings 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.
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