Oyster Bay, N.Y., gets a positive outlook after SEC settlement

A New York township that has been under the cloud of SEC scrutiny got a bump in its rating outlook.

Moody’s Investors Service revised its outlook for the Town of Oyster Bay’s Baa3-rated bonds to positive from stable Friday citing improved fund balance levels coupled with improved governance in the wake of 2017 federal charges for securities fraud. The Moody’s action came after the Long Island municipality of around 300,000 avoided financial penalties under a settlement approved by the SEC on June 10.

“Far from being a potential negative, the lawsuit has led to a positive outcome for the town,” Moody’s analyst Douglas Goldmacher wrote in a July 12 report.

The SEC charged Oyster Bay and its former town supervisor, John Venditto, with misleading municipal bond investors about loan guarantees totaling $20 million for a concessionaire during 26 securities offerings between August 2010 and December 2015. The approved settlement provides Oyster Bay a court-appointed consultant to assist in strengthening its oversight. Oyster Bay had initially faced prospects of a fine and ban on issuing debt without court approval for five years.

Goldmacher noted that Oyster Bay has taken steps to reverse its past history of “poor budgeting” and structural imbalance. New York State’s fourth largest township available operating fund balance in the 2018 fiscal year improved to negative $5.5 million, or negtive 1.7% of revenues, from negative $21.1 million, or negative 6.6% of revenues.

“Despite the still weak reserves, this represents a dramatic improvement over the recent past where reserves fell as low as negative $73.7 million," Goldmacher said. “The positive outlook reflects Moody's expectations that Oyster Bay's reserves are on the verge of turning positive.”

S&P Global Ratigns cited improved reserve levels in 2018 when it upgraded Oyster Bay one notch to BBB-minus from junk-level BB-plus. S&P has a stable outlook.

Goldmacher noted that Oyster Bay has reduced its previous reliance on cash flow borrowing.

Town Supervisor Joseph Saladino announced on July 8 that Oyster Bay required no cash flow borrowing in 2019 for the first time in 10 years thanks to “rapidly improved financial health” which included a $17.7 million budgetary surplus for 2018 based on a newly released independent audit.

Oyster Bay’s improved credit outlook by Moody’s was announced in advance of a planned $2.2 million sale of public improvement refunding bonds. The town has $623 million of outstanding general obligation limited tax debt, according to Moody’s.