| Global Credit Research |
| New Issue |
| 7 JUL 2003 |
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New Issue:
Oakland (City of) CA
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MOODY'S ASSIGNS MIG 1 RATING TO CITY OF OAKLAND TRANS |
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Approximately $76 Million of Debt AffectedMunicipality
NEW YORK, Jul 7, 2003 -- Moody's has assigned a MIG 1 rating to the City of Oakland's 2003-2004 Tax and Revenue Anticipation Notes. The rating primarily reflects the city's strong overall liquidity, which offsets some weakness in the projected general fund cash position and a relatively late set-aside schedule. An increased, but still manageable, borrowing amount compared to last year is also noted. The TRANs are being issued to finance the city's mid-year cash flow needs and are secured by the City's pledge of unrestricted, fiscal 2004 general fund receipts. Moody's rates the city's general obligation bonds A1 with a stable outlook. STRONG OVERALL LIQUIDITY OFFSETS PROJECTED NARROW GENERAL FUND CASH POSITION The city projects a rather narrow 3.6% fiscal 2004 year-end cash balance in its combined general fund, internal service fund, and lighting and landscape assessment district fund projections. The budget on which this projection is based appears reasonably conservative, but it leaves little room for a continued economic slowdown, or a cooling of the still relatively strong residential property market. The state budget crisis adds an additional element of uncertainty to Oakland's and all other California cities' fiscal 2004 projections, though we note that Oakland has taken a quite conservative stance on its currently most exposed revenue source, the Motor Vehicle License fee revenues. The City's budget is built on the assumption that only half the MVLF revenues are received. The city also projects the availability of considerable cash balances outside the general fund. These funds would be available for short-term borrowing, including across the fiscal year-end, in the event of an unexpected general fund cash shortfall. Total available alternate liquidity is projected to be almost $144 million at June 30, 2004, which represents 27.7% of the projected cashflow receipts. We do note, however, that a large portion of these funds, while legally available for borrowing, belong to the Port of Oakland. The Port is an otherwise separate public entity that is required by the city's charter to maintain its funds in the city treasury. Port funds represent about $115 million of the total projected alternate liquidity. The availability of substantial alternate liquidity is particularly significant since a repeat of the city's cash flow variances of the past two years would not be easily accommodated. Fiscal year 2002 experienced an overall cash flow deficit of only $2.6 million, but a cash surplus of $11.0 million had been projected. Current estimated-actual experience for fiscal 2003 is a $14.3 million cash flow deficit, when a $10.7 million cash surplus had been projected. This $25.0 million swing in fiscal 2003 is more than the city's projected fiscal 2004 year-end cash balance of $18.7 million. The risk this suggests is tempered by the fact that the city's fiscal 2004 budget is arguably more conservative than were the budgets in fiscal 2002 and 2003. INCREASED BUT STILL MANAGEABLE BORROWING AMOUNT With an expected continued weakness in a number of the city's economically sensitive revenue sources, this year's TRAN borrowing has been increased by about 40%, from $54 million to $76 million. On a percentage of receipts basis (14.9%) this larger TRAN size, however, is only modestly higher than the typical MIG 1 rated TRAN borrower. RELATIVELY LATE TRAN SET-ASIDES The city's pledged TRAN repayment set-aside schedule is quite late compared to the typical schedule for MIG 1 rated TRAN, but it is consistent with the City's practice in prior years. The final set-aside is scheduled for June 2004 (50% of principal and 100% of interest). The dollar-weighted average of this schedule is only 0.5 months prior to the fiscal year-end, while a typical schedule would be almost three months prior to year-end. KEY STATISTICS Projected Amount Borrowed as % of Receipts, FY 2004: 14.9% Actual Ending Cash as % of Receipts, FY 2002: 9.0% Projected Ending Cash as % of Receipts, FY 2003: 5.6% Projected Ending Cash as % of Receipts, FY 2004: 3.6% Historical Minimum Audit Cash as % of Revenue, FY 2000-2002: 1.9% Alternate Liquidity: $143.7 million Alternate Liquidity, % of projected FY 2004 Receipts: 27.7% Pledged Set-Aside Timing (months before June): 0.5 months AnalystsEric Hoffmann
Kenneth Kurtz Contacts Journalists: (212) 553-0376 |
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© Copyright 2003, Moody’s Investors Service, Inc. and/or its licensors including Moody’s Assurance Company, Inc. (together, MOODY’S). All rights reserved. |
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