CHICAGO – More than four years after falling into junk territory for reneging on its appropriation pledge, Moberly Missouri inched closer to an investment grade with a two-notch upgrade from Standard & Poor's.
The rating agency on Monday raised Moberly's rating to BB-minus from B and its certificates of participation were lifted to B-plus from B-minus.
The outlook is stable at the new rating. S&P had assigned a positive outlook to the rating last March.
Moberly lost its investment grade status in 2011 for failing to make good on its pledge to stand behind a $39 million bond issue for an artificial sweetener plant after the developer halted payments and abandoned the project.
"The upgrade reflects our opinion that the city has taken steps to establish a better framework for avoiding future events of nonappropriation," said analyst John Sauter. "It also reflects the city's continued commitment to its existing appropriation debt."
Moberly's debt remains three notches below an investment grade.
The rating is limited by analysts' assessment of city management as "weak" although the designation marks an improvement from its previous consideration of management as "very weak."
The city recently adopted debt and due diligence policies and continues to make payments on existing appropriation debt but the city's issuer credit rating would need a three notch boost to exit junk and that could be slow in coming.
The city of 14,000 reneged on its appropriation pledge on bonds issued through the Moberly Industrial Development Authority. Mamtek US Inc., which billed itself as a subsidiary of a Chinese firm that makes sucralose, defaulted in August 2011 on a payment to Moberly needed for debt service.
The city then informed trustee UMB Bank that it wouldn't honor its pledge to repay the debt. Mamtek then abandoned the half-built factory. Future court filings revealed the company misused bond proceeds and misled city and state officials as the project's prospects as the company sought local and state subsidies.
The sucralose plant debacle led to the company's involuntary bankruptcy, numerous investor lawsuits against the finance team members led by the former Morgan Keegan & Co. which underwrote the bonds, and various regulatory and legal actions at the local, state and federal level.
Moberly has since adopted new debt management policies with the goal of repairing its credit rating. The policies were designed "to provide guidance for the types of debt issued, the issuance process, and the administration of the debt portfolio," the document said.
The city also created a new economic development commission under an agreement that requires an independent third party to conduct due diligence on any company proposing to do business in the city in return for a financial incentive or other public assistance.
Morgan Keegan recently agreed to pay $850,000 to settle securities fraud charges brought by Missouri Secretary of State Jason Kander over the firm's role as underwriter. The complaint had charged that the firm failed to adequately investigate the feasibility of Mamtek's business plan, misled investors about investigation findings, and failed to inform them of significant risks of the bonds. The lawsuit alleged that Morgan Keegan misrepresented to investors that their bonds were secured by valid Mamtek patents, when in reality, Mamtek did not have any patents.
A series of lawsuits brought by investors against the financial firms involved in the project also have been settled, leaving only bankruptcy trustee action ongoing.
Missouri attorney general Chris Koster in 2012 filed charges alleging securities fraud and stealing against former Mamtek executive Bruce Cole, and the Securities and Exchange Commission filed a civil complaint accusing Cole of scheming to defraud potential investors. As part of a settlement with Koster's office, Cole is serving a seven-year prison sentence.
