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Rating Action:

Moody's upgrades Marysville, CA issuer rating to Baa1 from Baa2 and COP rating to Baa3 from Ba2; outlook revised to positive and review concluded

05 Sep 2019

New York, September 05, 2019 -- Moody's Investors Service has upgraded the City of Marysville, CA's issuer rating to Baa1 from Baa2 and certificates of participation (COP) rating to Baa3 from Ba2. The ratings were placed under review due to lack of sufficient information in June 2019, due to a delay in the release of the city's fiscal 2018 audit. The city provided its audited financial statement in August. Today's rating action concludes our review. The outlook was revised to positive from a rating under review.

RATINGS RATIONALE

The upgrade to Baa1 from Baa2 reflects substantial improvement in the city's financial position, including rebuilding healthy cash and reserves, resulting from the increase in revenues from both one-time and ongoing sources. The upgrade further reflects material strengthening of the city's management, including rebuilding administrative staff, adoption of improved processes and policies including a 20% minimum general fund balance, and significant improvement in financial reporting.

The upgrades also reflects the lessened risk of default on the COPs given the city has rebuilt the reserves available to pay annual debt service. The city's financial stress has been significantly reduced and the city has demonstrated prioritization of COP debt service.

The Baa1 issuer rating reflects the city's very small tax base and weak socioeconomic profile. It further reflects the city's healthy reserve position, benefiting from new revenue sources which are enabling management to begin rebuilding programs that had been eliminated and funding one-time expenditures that had been delayed. The rating also incorporates the city's very low debt level, but elevated pension liability. The rating further incorporates the improved management of the city operation, which we anticipate will continue to proactively address weaknesses in internal controls identified by its auditor. The issuer rating, which represents a general obligation unlimited tax (GOULT) equivalent rating when an issuer has no GOULT bonds outstanding, incorporates the strong legal features of California general obligation (GO) bonds.

The distinction between the issuer rating and COP rating reflects the typical two notches for a standard legal structure for a California abatement lease financing and a leased asset that we view as "less essential." The upgrade of the COPs to Baa3 reflected narrowing of this notching, which had previously been widened due to the unusually low level of essentiality for the leased assets and the city's extreme fiscal stress, which is now largely abated.

RATING OUTLOOK

The positive outlook on the issuer and COP rating reflects our view the city will sustain its improved financial profile consistent with a higher rating level. It further reflects our expectation that management will proactively address internal control weaknesses identified in its audit and will accomplish more timely financial reporting.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Sustained available balances and cash reserves consistent or better than current improved levels

- Significant increase in the city's assessed valuation (AV) and improvement to resident wealth measures

- Sustained increase in service levels without a return to deficit spending

- Development of the B Street site

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Material deficit spending

- Decline in the city's AV

LEGAL SECURITY

The 2011 COPs are secured by a lease payments by the city for use and occupancy of the leased assets, which include a community baseball park and a vacant five-acre site being held for development, known as the B Street site.

PROFILE

Marysville is a 3.5 square mile city with an estimated population of 12,413. The city is located at the confluence of the Yuba and Feather Rivers in Yuba County, north of Sacramento (Aa2 positive) in California's northern Central Valley. Levees built to protect the Marysville from flooding also limit the growth potential of this older, built out city, absent annexation of areas outside the levee ring. Established in 1850, Marysville is one of California's oldest cities and serves as the Yuba County seat.

METHODOLOGY

The principal methodology used in the issuer rating was US Local Government General Obligation Debt published in December 2016. The principal methodology used in the COPs rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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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.

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.

Lori Trevino
Lead Analyst
Regional PFG West
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco 94111
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Tatiana Killen
Additional Contact
Regional PFG Northeast
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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