Mickey Mouse Financial Club

Bond Rating? What Bond Rating?

How many times were the residents of Templeton reassured that the Town would have a Bond Rating restored BEFORE the elementary school project went out to bid?

The elementary school project has gone out to bid. 

Does the Town of Templeton have a bond rating?

NO! 

memorandum – OFFICE OF THE TOWN ADMINISTRATOR

TO:                        SelectBoard

FROM:            Carter Terenzini, Town Administrator

RE:                        Upcoming Borrowing

DATE:            November 1, 2017

CC:                        C. Richardson; K. Pontbriand; M. Carney

Our financial advisor has had preliminary conversations with Moody’s Investors Service relative to our seeking a rating for the Bond Anticipation Notes we are about to seek bids on.  For Municipal notes the ratings are as follows:

           

                                                            MIG 1, best quality

MIG 2, high quality

MIG 3, favorable quality; and

MIG 4, adequate quality.

The initial reaction is that we will not be able to obtain a MIG 1 rating.  There is a strong possibility we can achieve a MIG 2 rating but that is never certain until one formally submits the documentation for review.  Even if we achieve a MIG 2 rating it is at least .25% above the interest rate of a borrowing rated MIG 1 rating.  Our advisor has recommended, and I agree, that we not seek a formal bond rating at this time but instead finance our needs through unrated bank notes. 

The maximum for this in this calendar year will be $10,000,000 which is more than enough to cover our needs ($5M BAN, $1M Police, $2.3 Sewer, $1.7 new money).  This gives us $5.4M+/- for the school in CY ’18.  We will then seek an additional $10,000,000 in CY 2019 and continue to work toward an acceptable bond rating as your financial picture slowly improves.

This approach will take continual monitoring of your cash flow needs and does not deflate the opposition to the projects based upon their concerns over our financial condition.  However, it lets us get the projects underway, is not a negative of having submitted and not achieving a prime rating, buys us some time to improve how your financial condition is viewed by others, and keeps the pressure on to continue to make – and effect – the hard-financial choices that are needed to bring about longer term financial stability.

With respect to the actual bonding itself, Moody’s indicated that the underlying rating would be an A2.  Moody’s could not get the Town to the highest note rating due to the amount of debt authorized and the lack of a cash coverage ratio to pay the notes off if you couldn’t issue Bonds.  This is a highly unlikely scenario, but that’s their criteria.  For your information I have attached a graphic for the Moody’s Bond rating system so you can see how A2 would compare to the overall rating system for investment-grade issues.

	Moody's		Rating Description
	Long-term	Short-term
	Aaa	P-1	Prime	Investment-grade
	Aa1		High grade
	Aa2
	Aa3
	A1		Upper medium grade
	A2
	A3	P-2
	Baa1		Lower medium grade
	Baa2	P-3
	Baa3