The persistent weak economy and its impact on our finances has led Moody’s Investor Services to downgrade New Rochelle’s bond rating. Many other municipalities are being similarly reevaluated. Fortunately, our new bond rating of Aa3 is still quite good and defined as “of high quality and subject to very low credit risk,” so the City’s access to and cost of capital should be only minimally affected. Nonetheless, I won’t conceal my disappointment, particularly since this news comes only a few years after we celebrated an upgrade in our bond rating. It is an unfortunate sign of the times — lousy, but unsurprising.
Finance Commissioner Howard Rattner offered additional information earlier this afternoon. Here is his memorandum in full:
We have been informed by Moody’s Investor Services that our bond rating will be downgraded effective tomorrow 12/2/10. Moody’s will send official notification to the newswires on that date.
You may recall that the city was upgraded to a rating of Aa3 in early 2007, the first such upgrade in about 70 years. Earlier this year, many of the rating agencies recalibrated municipal bond ratings to enhance the comparability of ratings across entire portfolios of credit ratings.
At that time, Moody’s changed our rating to Aa2, a step above the previous rating. This was simply a change in scale and had nothing to do with credit worthiness.
Recently, Moody’s performed a periodic “surveillance” on the city’s financial condition, a process they are required to do for all of the clients that they rate. As a result of that surveillance, Moody’s has downgraded the City’s bond rating from Aa2 to Aa3. While acknowledging the City’s sizeable tax base, wealth levels, and continued budget controls, Moody’s cites a weakened financial position resulting from declining sales tax and other revenues and the deterioration of our fund balance over the past three years.
Moody’s has revised the ratings of 17 municipalities in New York State since the recalibrated rates were established. Fifteen of those ratings were downgraded including the Village of Harrison (downgraded from Aa2 to Aa3), the Village of Tuckahoe (downgraded from A1 to A2) and Monroe County (downgraded from A2 to A3).
The City’s new rating of Aa3 is still a relatively strong rating and is considered by Moody’s to be “of high quality and subject to very low credit risk”. Comparatively, this rating is lower than White Plains, equal to Mount Vernon and stronger than Yonkers. The impact of this rating change will mean slightly higher interest rates on future debt obligations when the City goes to market.