DALLAS -- Cincinnati, Ohio heads into the market Wednesday with an upgrade in hand.
The city will sell $82 million of new money and refunding general obligation bonds on Wednesday.
S&P Global Ratings upgraded the ratings on the city's unlimited-tax general obligation debt one notch to AA from AA-minus. The rating on the city's non-tax revenue bonds were upgraded to AA- minus from A-plus.
"Bond ratings like these allow us to improve assets and ultimately lead to a better Cincinnati," City Manager Harry Black said in a press release. "The city stands on solid financial ground and these ratings will provide more opportunities to build on this strong foundation."
The bonds will be sold competitive Wednesday. Bond counsel is Dinsmore & Shohl LLP. Davenport & Company, LLC is advising the city.
The deal includes $54.9 million of new money. The remainder will refund outstanding debt from the city's series 2007C unlimited-tax GO refunding bonds, series 2010F unlimited-tax GO bonds, series 2011C unlimited-tax GO bonds. The deal includes $71 million of GOs and $11.7 million of non-tax revenue bonds.
The city expects to achieve savings of approximately $500,000 through its bond refunding, according to city spokesperson.
S&P's said the one notch upgrade was driven by the city's improved budgetary performance and strong management. "We view the city's management as very strong, with strong financial policies and practices under our Financial Management Assessment methodology, indicating financial practices are strong, well embedded, and likely sustainable," said S&P.
"Anytime you have an upgrade you feel good about the upcoming bond issue," Kyle Laus, a senior vice president at Davenport & Co., said.
In 2015, the Cincinnati city council adopted a rainy day fund, requiring minimum contingent reserves of two months' or 16.7 % of the general fund revenue by fiscal 2020. Although Cincinnati's assigned and unassigned general fund balance based on a generally accepted accounting principles currently exceeds that level at 20% of revenue, the city includes only certain portions of the available fund balance. According to Cincinnati's measurements, the city's reserves were at 12.4% of revenue as of fiscal 2016. The council aims to add 1% to the reserves annually to comply with its policy by 2020.
The council also recently approved a comprehensive policy for issuing and managing debt. The policy sets various ratio targets including amortization, debt-to-property valuation, debt service to total governmental fund revenue, and cash funding of the capital plan. The plan also includes requirements for refunding outstanding debt, composition of the financing team, and general debt issuance guidelines.
In 2015 the city reached an agreement with its retirees and unions that will restore the city's main pension fund to full funded status in 30 years.
The deal, dubbed the Cincinnati Pension Collaborative, called for Cincinnati to transfer $200 million from its healthcare trust into the pension system, and will contribute 16.25% of payroll into the pension annually for 30 years. The settlement also required the city to issue $39 million of bonds to raise cash for an immediate payment into the pension fund.
In return, unions and retirees agreed to a reduced cost-of-living-adjustment increase of a simple 3% from a compounded 3% and COLAs were suspended for all employees for three years while the retirement age and years of service requirement for some employees was extended.
"When we took office we faced $800 million in pension liability and had been downgraded by the rating agencies for the first time in a generation," Cranley said in the press release. "Within three years we have shored up the pension, balanced the budget and have now earned an upgrade. We are getting the city's financial house in order."
The city's fiscal 2015 general fund results came in better than budget, producing a $5.3 million surplus, The city's unaudited draft figures for fiscal 2016 indicate another general fund operating surplus of $5.3 million, according to S&P. The city new budget year begins on July 1.
The city has about $615 million of tax supported debt outstanding and $115 of non-tax revenue bonds. The city plans to issue $53.8 million in additional debt during the next two years for capital projects,
Last week, Moody's Investors Services reaffirmed the city's general obligation bond rating on Aa2. It also left the city in the stable outlook category.
