Moody's Lowers Burbank's Bond Rating

Moody’s Investors Service recently announced a downgrade to the City of Burbank's bond rating. Moody’s is a bond credit rating business that provides research on commercial and government bonds. 

Generally when a bond is downgraded, investors demand a higher yield making it more expensive for the bond issuer, in this case the City of Burbank, to raise money. 

The city is expected to sell approximately $5.8 million of General Obligations (GO) bonds later this month. The proceeds from the sale are expected to finance street improvements and other related infrastructure projects. After the sale, the City of Burbank will have $15.5 million in outstanding rated general obligation debt.

In a press release issued yesterday, Moody’s cited the city's “narrowing reserves, moderately sized tax base with significant valuation declines, manageable debt burden, and still moderate pension liabilities despite a recent history of Annual Required Contribution (ARC) shortfalls” as the rationale behind the downgrade.

Moody’s downgraded the GO rating of the City of Burbank to A2 from A1. Bonds rated A2 are judged to be upper-medium grade and are deemed low credit risk.

This is the second time in less than a year that Moody’s has lowered the city’s bond rating. Last September, Moody’s downgraded the General Obligation rating of the City of Burbank to A1 from Aa3 and issued a negative outlook. As a result of the current downgrade, the negative outlook has been removed.

In the press release, Moody’s enumerated factors that could effect the city’s bond rating in the future:

WHAT COULD MOVE THE RATING UP

• Stabilization and growth in reserves
  
• Sustained trend of balanced financial operations coupled with increased pension funding

WHAT COULD MOVE THE RATING DOWN

• Continued decline in reserves
  
• Erosion of the tax base or demographic profile
  
• Substantial increase in the city's debt or pension burden
  

Source: Moody's Investor Service press release

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