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County Council, April 13

Higher rating will lead to $0.5 million interest cost savings
Savings on future bond issues likely
Warwick Jones

There was nothing on today's agenda of note. The Finance Committee meeting ended after only a few minutes. But there was some interesting news. Standard and Poors has given the County an AAA rating for the purposes of the $65 million bond issue that is planned. This is a higher rating than the County received when it last issued bonds. The previous rating was AA+. The staff estimates that the improved rating will lead to savings of about $0.5 million over the 20-year life of the bond.

Council was conspicuously pleased with itself tonight. And it had reason to be. An AAA rating is second to the highest possible rating, AAA+. Only one other county in the State - Greenville- has a rating as high as Charleston. And indeed, the State itself has a rating slightly lower at AAA-. Staff also said that of all the counties in the US, only 55 had AAA ratings by any of the major rating agencies.

Presently the County is preparing to issue about $65 million in long-term bonds. The issue will comprise $36 million for the Parks and Recreation Commission (PRC) and $29 million for transportation projects. The PRC amount was specifically mentioned in the sales tax referendum as were the projects relating to transportation. Sales tax funds will be used to pay interest and for principal amortization. Staff was not sure of the final coupon rate but most likely will be about 4.75% and slightly lower than what it would have been under the AA+ rating.

The County will very likely be making more bond issues either late this year or early next. These will be to fund greenbelt and transportation projects, and like the present issue, the half-cent sales tax will fund interest and amortization. Further down the track, the County will likely raise more funds for construction of a new jail.

We don't pretend to know all that S&P considers in making its assessment. Certainly the management of the County and its financial rectitude are taken into account. But factors such as economic growth and outlook also would be important.

Below is an extract from the S&P website describing its ratings:

Long-Term Issue Credit Ratings
Issue credit ratings are based in varying degrees, on the following considerations:
• Likelihood of payment capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
• Nature of and provisions of the obligation; and
• Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above.

AAA

An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA

An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A

An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB

An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB, B, CCC, CC, and C

Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB

An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B

An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC

An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC

An obligation rated 'CC' is currently highly vulnerable to nonpayment.

C

The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.

D

An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

Plus (+) or minus (-)

The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

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