The City’s ability to borrow money and pay it back at the lowest possible interest rate took another hit today. The hotel bond is rated as an A. The highest rating is AAA. There are 3 levels of A ratings and the City is now scraping the bottom of the top category.
According to Standard & Poor’s rating definitions, a AA rating differs from the highest rated obligations (AAA) only to a small degree. The obligor’s capacity to meet its financial commitment on the bond is very strong. An A rating is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. The next level, BBB, indicates that 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 bond. Anything below BBB is regarded as having significant speculative characteristics.
The problems with the City’s bond rating began when spending started to outpace revenues, and the City went on a borrowing spree. This started with the borrowing of $127 million for the arena and millions for sewer and water system projects while gambling became more competitive in the state and property tax caps took effect. The City used to hold an AA rating status but was identified by rating agencies as trending from stable to negative last year. This negative trend applies to all bonds or loans taken out by the City except for loans taken out related to the sewer system. Thus far, rate increases have outpaced spending with regards to the sewer system, although that is poised to change as an EPA plan to address combined sewer overflows is approved. Water system bonds and the arena bonds were downgraded from stable to negative.
Now the hotel bond rating demonstrates a further deterioration in how investors view the reliability of the City to repay its creditors. An A rating itself is certainly not a crisis, but the negative trend, as the City sets out to borrow $77 million for the hotel and medical school cannot be ignored. This rating will require that the City’s debts be repaid at a higher interest rate than if the City had maintained its AA rating. It can also create problems with any attempts to refinance the loans to lengthen repayment periods or take advantage of historically low interest rates.
In high school, getting an A is something to cheer about. In municipal bonding, it is not. It solidifies as fact the downward spiral of the City’s borrowing capacity that began five years ago. At a time when revenues haven’t covered the amount spent for nearly four years, it is hard to accept the extra blow of paying 2 to 3 points more in interest than other communities with better credit. The hotel bond allows up to 7% in an interest rate. AAA bond rated cities are paying 4%. The difference between 4% and 7% on a 20 million loan paid over 20 years is 17.2 million in interest versus 9 million in interest. It matters, and an extra 8 million in interest for a struggling City is a huge problem.
Stephanie Brinkerhoff-Riley
3rd Ward City Council Member
I’m certain Wayne Parke will have some illuminating insights regarding this matter. Most likely he’ll put blame on the City Council or Cheryl Musgrave.
‘It matters, and an extra 8 million in interest for a struggling City is a huge problem’.
It doesn’t matter to those borrowing it for their monuments and graft vehicles. It matters to those who have to pay it back but have no real ownership interest in our goofy accidental mayor’s 3rd rate schemes.
Show Winnecke the door in November. Evansville can’t afford this little conman’s mark any longer.
Waiting for the predictable personal attack on SBR by Weaver.
… with the inevitable Pod Pea ‘like’ by The Mosby. Those two are the face of the Winnecke administration. They are the kind of people the mayor surrounds himself with. They say the things he’d like to say: gritty, nasty, street stuff. Not the utterings of folks you’d usually want on your council or representing your city. What’d The Mosby win her primary by? Ten or twelve votes? Sounds like a mandate to pop off to me.
Deep down those two must surely know how extremely limited they are. That they don’t really fit in with the people who are using them and never will. Maybe not.
Dome and gloom Stephanie is at it again. Actually the financial services company cites area’s strong economy for its good rating. We have Mayor Winnecke to thank for that.
A new report by Standard & Poor’s has reaffirmed its ‘A’ rating on lease rental bonds issued by the City of Evansville Redevelopment Authority to finance the Ford Center. S&P also assigned an ‘A’ rating on economic development revenue bonds for the downtown convention hotel project. The ‘A’ rating means the City has a “strong capacity†to meet its obligations to repay the debt and is among S&P’s highest rating categories.
“The rating reflects the strength of the City’s county option income tax (COIT) pledge†to pay off the bonds, according to a Standard & Poor’s report issued Monday, August 10, 2015. The report indicated the COIT pledge and revenues from the local food and beverage tax would provide good coverage for the annual debt service on the bonds. Other positive factors were “a large and diverse employment and income tax base serving as a regional economic center†and “declining unemployment.†The June 2015 unemployment rate for Vanderburgh County was 4.3 percent, according to the U.S. Bureau of Labor Statistics.
I was always proud to get an “A” in school or anywhere else.
Submitted by Wayne Parke
Wow. I know/hoped you were smarter Wayne. You do realize that the initial bond on the arena was AA. For it to reevaluated as an A is a downgrade in the City’s financial strength, right? Only a fool would be proud to get an A in bond ratings. There are four levels of acceptable bond ratings, and Evansville is on level 3 of 4. We used to be on level 2. The best is AAA, then AA, then A and then BBB. Both A and BBB are considered susceptible to changing economic conditions, meaning that there are possible factors out there that could interfere with the City’s ability to repay its debt. It’s like you can’t read.
It is also highly probable that the downgrade from AA to A has reduced the value of the Ford Center bonds in the secondary markets. That is a problem for bond holders who wish to liquidate prior to maturity. Imagine buying $1,000,000 worth of bonds and learning 4 years later that your investment is only worth $950,000 due to the downward trend of the city you loaned money to. That is what happened to the people who bought bonds in Donald Trumps casinos.
The City did not–repeat–did not have a downgrade
So who do we have to thank for the prior higher bond rating of AA? Mayor Weinzapfel? I would agree that we definitely have Winnecke to thank for the downgrading of the general view of the City’s ability to pay its debts.
Geez, what a disingenuous moronic comment. This is what passes for wisdom and leadership in Evansville.
Is republican your real name? I thought we stood for being the fiscally responsible choice? Maybe that’s why I self identify as a conservative rather than republican. (Christian conservative to get BB ranting and raving.) Any accidental A’s I received in school were a good thing, but when the top student’s grades began dropping everyone knew there was a problem.
We are spending more than revenue. That means we are under water. What you’re saying is being a couple inches deeper in the water is not a problem. Clearly those who issue bond ratings believe it is more of a problem. Maybe I am being simplistic in my example, but who would claim that a corporation hemorrhaging red and not paying it’s obligations timely is a strength?
Wayne
Well, there you go again, attacking the messenger while ignoring (or in your case, probably incapable) of answering the substance of the message
So, lets look at what the ratings difference is between AA and A, and to do so, we will use the descriptions given by Standards & Poors
A+, A, and A- (Strong Capacity to Repay Loans). Some borrowers are financially stable under current economic conditions. However, S&P acknowledges that certain companies, though stable now, will have more difficulty repaying their loans if economic conditions change. Therefore, S&P rates these debt instruments as A+, A, or A-.
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 more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories.
Basically, those borrowers that are rated ‘A’ are financially stable under current economic conditions. However, S&P acknowledges that, though stable now, will have more difficulty repaying their loans if economic conditions change.
Your flippant comment that you were “always proud to get an “A†in school or anywhere else” just proves that you are either incapable (any by that I mean ignorant and uninformed) of understanding the rating structure of how Standard & Poors works, or you are even more of a shill than we worried about. As the letter points out “In high school, getting an A is something to cheer about. In municipal bonding, it is not” Maybe if you grew up rather than resorting to juvenile antics we might take you seriously (not!)
Are you actually so stupid that you do not see how the difference between A and AA means that Evansville will potentially face millions in extra costs in interest alone to repay any bonds or financing that we undertake in structuring the finances behind the medical center, hotel, EPA mandated sewer repairs, and any other multi-million capital projects? Nevr mind, you need not answer that one, we ALL know the answer. As Stephanie rightfully wrote “This rating will require that the City’s debts be repaid at a higher interest rate than if the City had maintained its AA rating”
Let us guess, you are one of those people that live “paycheck to paycheck”, so you do not understand that by cutting things to close, Evansville has a more than decent chance to potentially default on obligations. It also means that by having our bond rating lowered that it will make it harder (if not impossible) for Evansville to structure bonds to pay for the things we need to properly finance (and I am not necessarily thinking of the hotel)
Stephanie did a great job of outlining why we need to be cautious in Evansville, and her presentation was not “gloom and doom” as you wrongfully assert. It is very clear that you have a problem with intelligent and thoughtful women, which is probably the primary reason you take issue with the letter today.
Only a hack with low intelligence would think that a city getting their bond rating lowered is a good thing. The lower bond rating means we will potentially have a tougher time getting bonds for capital projects, and it is a sure thing that Evansville will see increased costs for overhead on bonds.
Gee, I wonder why I can’t find anything about this in the Courier. You’d think that would be somewhere in there, but it seems to have been omitted.
Wayne. Why are you discounting the downgrade. Blah blah blah damn SBR don’t tell the truth blah blah blah everything is great. Keep digging the hole.
To What a joke –THERE WAS NO DOWN GRADE
Wayne
Yes there was. A simple google search and looking at mayor winnecke’s Facebook page will show you. 2014 was Aa3 now a
Trending DOWN,–Millions more in interest to be paid by the Citizens,–and the Republican Buffoon is Proud! Leadership to brag about?
Moron alert! Moron Alert! –Parke’s at it again,–LOL!
Wayne needs to hire Ethel Merman to sing “Everything’s Coming Up Roses”, except she’s dead and this City will be too with this level of arrogance and aloofness.
When were the Arena Bonds downgraded ?
The Courier & Press simply has to report this type of information ! How can a bond rating change not be newsworthy ? A newspaper has a social compact with a community, now is the time for full disclosure.
Thanks to Stephanie for starting the process of disclosure.
Could it be that is why the people who benefited most financially from the construction of the arena gave a membership in their club to Jack Pate?
The concept of an “informed” voter is foreign to Evansville.
David:
Joe is talking about the “secondary market” for the arena bonds and how that can be damaged by the city’s inability to hold on to their prior higher bond rating.
This city simply has to stop the spending for a while and attempt to get caught up on its debt. Who knows how much money went south during the last administration? Certainly not the SBOA, and certainly not Russ Lloyd.
Yes, thanks SBR.
Stephanie does not know what she is talking about—-There was no bond down grade.
Wayne
17.2 million interest on a 20 million loan to pay for a project taxpayers receive nothing tangible for is madness. Sheer lunacy! Interest on the similar project, the 60+million loan (bribe?) to site the IU med school downtown will be staggering.
Wayne, I know nothing about this but you make it sound worse when you say Evansville had to pledge all the other revenue sources to repay the bond. Property taxes were not enough? Is that like me getting a loan that I don’t qualify for so may parents and children have to co sign and guarantee payment. Sounds like our leaders are learning how to manage more things than just blight from Detroit. Detroit had a good rating – until they went belly up.
Strph:
I am assuming that the city had to backstop the bonds by also pledging revenue from the city’s share of the County Option Income Tax (COIT)? That is what the city had to do in order to generate any investor interest in the arena bonds.
I would have cheered to get an A- in school, but this is an “open book” test.
To Stephanie–
It appears you are intentionally trying to mislead the public and/or you just do not know/understand the facts regarding the recent issued Evansville Bond Rating by S & P. What you said in your letter-to-editor above— Is Not True. In the latest Bond Rating by S&P, the bond ratings for Evansville did not change. The ratings are the same as under Weinzapfel. S&P believes City of Evansville has STRONG capacity to meet its financial commitments.
It is very disappointing that you, an Attorney, and one who currently is a City Council Member, is stating incorrect/deceiving statements like you did above. In my judgment, this is a contemptible ignorant smear.
It will be a good day in Evansville when Anna Hargis takes your seat representing the people of the 3rd Ward.
Wayne Parke
Don’t count on it you buffoon. SBR spends the time she has left on the council trying to shine light on the misdeeds, the very acts you so champion, of the Winnecke administration. Her actions have been in the furtherance of good government.
You have taken the role of Winnecke’s lead cheerleader, a role you are poorly suited for despite the pleated skirt. He should have looked around for someone truthful, someone with a little credibility. I look for him to lose the upcoming election. He is the very epitome of a front man and is running against an attractive candidate much smarter than he is. Winnecke is unsuited to hold the office he stumbled into.
Hargis’ abacus must have misbeaded the other day when she parroted the lie that not having that cheapÅ by-the-hour hotel downtown has cost the city 13 million. You folks just won’t let your candidates be honest. I live in the 3rd Ward and Hargis isn’t too popular out here and neither is your boy Lloydie.
☆ Gail Riecken For Mayor ☆
☆ Anna Melcher For 3rd Ward Council ☆
☆ Wayne ‘Dog’ Parke For Center Ring, Shrine Circus ☆
To Wayne-
Weinzapfel’s bond rating for the arena was AA. Winnecke’s bond for the hotel is A. Those are not the same ratings.
Everyone
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