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Rating Action:

Moody's upgrades Marysville, CA's Issuer Rating to Baa2 from Baa3 and COPs to Ba3 from B2; Multiple Outlooks

Global Credit Research - 01 Sep 2016

New York, September 01, 2016 -- Summary Rating Rationale

Moody's Investors Service has upgraded the City of Marysville, CA's issuer rating to Baa2 from Baa3 and certificates of participation (COPs) to Ba3 from B2. The outlook on the issuer rating is stable, while the outlook on the COPs rating is positive.

The upgrade to Baa2 of the issuer rating reflects the voter approval received by the City in June 2016 for Measure C, a 1% sales tax that will enable the city to close its structural deficit beginning in fiscal 2017; demonstrated prioritization of its COP debt service; and the City's prudent plan for spending Measure C revenues to restore its financial position that had weakened significantly by the end of fiscal 2016. Measure C will generate over $1.5 million annually for ten years, and the City anticipates its first receipts in December 2016. The Baa2 issuer rating incorporates the City's small but recovering tax base, weak socioeconomic profile, very low debt level, and continued cost pressures on its basic operations. The issuer rating further reflects the strong legal features of California general obligation (GO) bonds, which Moody's incorporates into issuer ratings despite there being no GO debt outstanding.

The upgrade to Ba3 of the COP rating reflects these factors as well as a reduction in the notching between the issuer and COP ratings from five to four, to account for the lessened risk of default on the COPs resulting from the successful passage of Measure C and sufficient reserves available for the October 2016 payment. The four-notch distinction between the issuer rating and COP rating includes 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." Two additional notches reflect the City's high level of fiscal stress and an unusually low level of essentiality for 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.

This action concludes a rating review initiated June 13, 2016 in the wake of voter approval of Measure C.

Rating Outlook

The stable outlook on the issuer rating reflects our view that the City's financial position will remain at its current weakened level in the near term, using new revenues to restore services that had been cut in prior years and slowly rebuilding its reserves.

The positive outlook on the COP rating reflects the potential reduction in notching from the issuer rating as the City's fiscal stress is reduced, there is a demonstrated track record of supporting lease payments from the General Fund, and improving local economic conditions generate development interest in the B Street site.

Factors that Could Lead to an Upgrade

Significant and sustained increase in available balances and cash reserves

Settlement of contracts with bargaining units with financially sustainable terms

Factors that Could Lead to a Downgrade

Deficit spending of General Fund reserves for operations or debt service

Decline in the City's assessed valuation (AV)

Legal Security

The 2011 COPs are secured the city's covenant to budget and appropriate lease payments for the occupancy and use of the leased assets, which consist of a five-acre site of undeveloped land (known as the B Street property) and a community baseball park. The leases are standard California abatement leases. The COPs have a debt service reserve fund funded in cash at $600,000 held by the trustee, which satisfies the reserve requirement, but is less than the annual payment starting in fiscal 2017.

Use of Proceeds

Not applicable.

Obligor Profile

Marysville is a 3.5 square mile city with a population of about 12,000, located at the confluence of the Yuba and Feather Rivers in Yuba County. Levees built to protect the Marysville from flooding also limit the growth potential of this older, built out city. Established in 1850, Marysville played a key role in early California history. The city is the county seat of the largely rural Yuba County with an agricultural economic base.

Methodology

The principal methodology used in the general obligation rating was US Local Government General Obligation Debt published in January 2014. The principal methodology used in the lease rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

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 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: 212-553-0376
SUBSCRIBERS: 212-553-1653

Helen Cregger
Additional Contact
Regional PFG West
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

No Related Data.
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