Bond ratings: not just for nerds anymore

Posted by Jeremy Shulkin

Three major bond rating agencies, Moody’s, Fitch and Standard & Poor’s have all maintained their high ratings for the city of Worcester (respectively: A1, AA-, A-), despite a year of budget cuts, revenue loss and raised taxes for FY11.

In a report released today by the City Manager’s office, Manager Michael O’Brien credits MassPort’s takeover of the airport, the commencement of CitySquare, new PILOT agreements and collective bargaining contracts that have resulted in zero percent wage increases and higher health care contributions from public sector unions.

O’Brien wrote in his report that this shows investors Worcester is “a solid, long term investment.”

But that doesn’t mean everything is hunky dory in the city. O’Brien cites that both Moody’s and Standard & Poor’s had some warnings of  a not so rosy future, singling out pension benefits and unresolved collective bargaining contracts as destabilizing factors. (Oh, hello, two week-old Worcester Mag article on this very topic.)

And it’s a convenient launching pad for some of his short-term financial goals: settling outstanding union contracts with zero wage increases and more benefits paid into the system by members, along with getting Worcester involved in the state’s Group Insurance Commission. He can use this as leverage to effect how the council votes on issues relating to new contracts and health insurance.

Read his, and the rating agencies’ reports here: BondRatingAndOtherFinancialData2010.

Of the three groups Moody’s seemed to have the most criticisms of the city, calling Worcester out on its higher than state and national average unemployment level, that the city had to tap into it’s once-$12 million tax levy to balance the FY11 budget, that state aid will decrease even further, and that assessed property values dropped 10% last year. But even with these factors working against Worcester, Moody’s expressed optimism in the city, citing medium-term developments that have yet to be finalized, such as CitySquare, the CSX expansion and North Main Street’s revitalization.

Look for a wave of praise to come from the council floor next Tuesday night.

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2 Comments

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2 responses to “Bond ratings: not just for nerds anymore

  1. -Q

    Stanford Securities Class Action Clearing house reported that “credit agencies such as Moody’s investor services inc., Fitch inc., and the Standard and Poors issued favorable credit ratings of WorldCom just 3 months before it declared bankruptcy – the unexpected collapse of these issuers cost investors billions.
    Unitl the date of their filing for bankruptcy all three credit raters of Lehman Brothers had given the company at least an A rating – s&p rated the companys debt as A. The Moodys rating was A2 and Fitch’s rating was A+
    Moodys and S&P favorably listed Enronbonds 4 days before its bankruptcy filings
    When the City Manager starts the usual smokescreen strategy to obfuscate the real facts then one can reasonably assume that we here in Worcester are in for some very turbulent times ahead regardless of the CM-spin-master web of deceit that he weaves!
    (info gleaned from t&g/cm……)

  2. Hey Q what exactly is your area of financial expertise? Fiscal stupidity?

    Do you know the difference between a corporation and a municipality? And tell us, what are the determinants of a municipal bond rating as opposed to a corporate bond rating? No idea huh? Thought so.

    Why don’t you go stand on a street corner with a sign for the next 48 hours.

    That Q really does stand for Quack.

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