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The original item was published from 7/8/2015 10:49:45 AM to 8/9/2015 12:05:01 AM.

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Danville, VA Local Government News and Announcements

Posted on: July 8, 2015

[ARCHIVED] Agencies upgrade Danville’s bond rating, outlook

Municipal Building file photo

Standard and Poor’s Rating Services has raised the City of Danville’s bond rating, citing “very strong” management and strong financial policies and practices that are “well-embedded and likely sustainable.”

In addition, a second agency – Moody’s Investor Services – has upgraded the city’s outlook from stable to positive, specifying “a strong management team and conservative budgetary practices” as key factors.

“This is great news for the city,” Michael Adkins, the city’s finance director, said Wednesday. “Our financial health is improving, and these favorable results reflect that improvement.”

Agencies issue new ratings any time a city prepares to sell bonds publicly. Tuesday night, City Council authorized the issuance of $10 million in general obligation bonds for various capital projects, including $3.5 million for electric substation and transmission upgrades and $2.6 million for school building repairs and replacement of roofs.

Council also authorized another $11.6 million in bonds to refinance previous bonds at a lower interest rate.

Representatives from three private, independent rating services – S&P, Moody’s and Fitch Ratings – visited the city on June 4-5 at the invitation of city officials.

“We thought it would be an opportunity for them to see firsthand the strides we have made in the River District, blight eradication and development of our industrial parks,” Adkins said. “We believe they were able to get a good sense of the changes that have taken place here.”

Effectively, the city was able to shift the views of two of the three agencies. S&P raised the city’s bond rating from a third tier level of A+ to a second tier level of AA-, giving the city a AA- rating from two of the three agencies. In 2013, Fitch was the first agency to assign the city an AA-rating.

A bond rating is a grade given to bonds that indicates their credit quality. Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade.

Moody’s kept the city’s bond rating at A+, but upgraded the city’s outlook from stable to positive.

“This leads us to believe in the next 12 to 18 months we will move up and be on the higher tier in the eyes of all three agencies,” Adkins said.

In upgrading Danville’s outlook, Moody’s noted that the city continues to experience high unemployment and low socioeconomic indices, but added the city is well managed and has a “strong financial position and manageable debt position.”

The positive outlook, the agency’s report reads, “is supported by a strong management team and conservative budget practices. The city’s healthy reserve and liquidity levels have improved significantly over the last five years, a trend that is expected to continue despite an increase in debt service in the near term. The outlook also reflects the city’s moderately-sized tax base that is projected to grow modestly as development rebounds after the economic recession.”

S&P, in its report, stated it considers Danville’s economy weak, but added, “After a long period of decline following the closure of the city’s major textile mill and a number of tobacco-related businesses, the city is experiencing renewed investment. …. The city’s River District is also transforming as the city works to eliminate blight and to bring in new residents and small businesses.”

The report continued, “We view the city’s management as very strong, with ‘strong’ financial policies and practices.” S&P said these practices are “well-embedded and likely sustainable.”

S&P also deemed the city’s budgetary flexibility and liquidity as “very strong,” with “strong” budgetary performance and debt and contingent liability.

Fitch affirmed the AA- bond rating that it had assigned in 2013 to Danville and said the city’s rating outlook is stable due to its “strong financial position.”

“Conservative budgeting, strong budget control and adherence to well-articulated policies has led to a stable, strong financial position,” Fitch reported.

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