Moody’s Investors Service has downgraded to A2 from A1 the rating on Rio Nuevo Multipurpose Facilities District (City of Tucson), Arizona’s subordinate lien excise tax revenue bonds. The downgrade affects $64.7 million in outstanding bonds. The bonds are secured by a subordinate lien pledge on the district’s incremental state sales tax revenues. The bonds are additionally secured by an intergovernmental agreement with Tucson that provides, in the event there is insufficient pledged revenues to make debt service payments, that Tucson will cure that deficiency, subject to annual appropriation.
A stable outlook has also been assigned.
RATING RATIONALE
The downgrade reflects a deteriorating trend of the district’s pledged revenues in recent years. The rating also considers the bonds’ legal provisions, the existence of a cash-funded debt service reserve, and Tucson’s moral obligation pledge to cure a deficiency in pledged revenues to make debt service payments.
The stable outlook reflects Moody’s expectation that the City of Tucson will fulfill its moral obligation pledge to cure a deficiency in pledged revenues to make debt service payments.
STRENGTHS
– Moral obligation pledged from a highly-rated entity (the City of Tucson)
– Intergovernmental agreement with the Arizona Department of Revenue to provide the district with greater transparency into taxpayer information
CHALLENGES
– Deteriorating trend in pledged revenues in recent years
– Weak tax collection mechanism primarily reliant upon accurate self-reporting by taxpayers
OUTLOOK
The stable outlook reflects Moody’s expectation that the City of Tucson will fulfill its moral obligation pledge to cure a deficiency in pledged revenues to make debt service payments.
WHAT COULD MOVE THE RATING-UP
– Upgrade of the City of Tucson’s credit rating
– Substantial and sustained increase in pledged revenues
WHAT COULD MOVE THE RATING-DOWN
– Downgrade of the City of Tucson’s credit rating
– Continued deterioration in the district’s pledged revenues, including falling below sum-sufficiency