Moody’s upgrades city of Kent’s bond rating; positive outlook

The financial picture for the city of Kent keeps looking brighter and brighter.

Moody’s Investors Service upgraded the city’s bond rating to A2 from Baa2 on limited tax general obligation (LTGO) bonds in a report released on Friday.

The New York-based agency also revised the city’s rating outlook to positive from stable. The rating affects $54 million of outstanding LTGO debt and $2 million of outstanding local improvement district debt.

Moody’s in its report last year removed the city’s “somewhat weak” financial position after it twice downgraded Kent’s bond rating in 2012, from Aa3 to A1 and then to Baa2.

An A2 represents the third highest rating group and indicates obligations are judged to be upper-medium grade and are subject to low credit risk. The  ratings range from a top mark of Aaa and then drop to Aa, A, Baa, Ba, B, Caa, Ca and C. Numerical modifiers 1, 2, and 3 also are added to letter-ratings with 1 the highest mark.

“The upgrade to A2 is based upon the rapid and significant improvement in the city’s financial profile,” according to Moody’s. “The city’s available liquidity, reserves, and operating flexibility are notably stronger now than they were in recent years.

“New revenues have been raised; the city’s contingent debt obligation has been incorporated as an ongoing expenditure and is being paid in isolation from the general fund; certain deficit fund balances will be eliminated by surplus cash flows in fiscal year 2016, and all inter-fund indebtedness is on course to be retired by 2022.

“The upgrade acknowledges that previously identified credit risks have been greatly reduced as a result of recent revenue increases and budgeting decisions to strengthen the balance sheet on an accelerated basis, and that these efforts have already yielded improved financial metrics and will likely continue to do so.”

Moody’s likes what it sees in the future for Kent as well.

“The positive outlook reflects our view that the city will continue to improve its financial position,” according to the report. “We expect the city to sustainably resolve its inter-fund payables and deficit fund balances, and continue to meet its contingent debt obligation as an ongoing expenditure. The city’s economic and debt profiles are generally favorable, and to the extent the financial position improves, the overall credit profile is likely to strengthen.”

The agency released the following forecast:

What could make the ratings go up?

• Improved financial position resulting in elimination of deficit fund balances and maintenance of healthy general fund reserves

What could make the ratings go down?

• Inability to eliminate deficit fund balances

• Deterioration of general fund reserves

The Moody’s rating marks the second strong financial report this year for Kent.

Standard & Poor’s upgraded the city’s general obligation bond rating to AA with a stable outlook from AA minus in its April 6 report. The agency stated the increase reflected its view of the city’s improved budgetary flexibility consistent with adoption of a business and occupation (B&O) tax and an improved debt profile, according to a city media release.