(The Center Square) — The bond ratings for the city of Shreveport have been updated and one agency downgraded the city’s scores, meaning borrowing money for projects could be more expensive.
Credit rating agencies like Moody’s and S&P rate the creditworthiness of countries, cities and companies. They provide banks and other financial institutions with credit analysis to help them assess the risk of securities.
The ratings are usually letter grades, with AAA being the highest and D being the lowest.
Standard & Poors maintained a BBB+ rating for Shreveport’s general obligation bonds and maintained a stable outlook. However, the same can’t be said for Moody’s rating.
Moody’s has downgraded Shreveport’s general obligation unlimited tax and senior lien revenue ratings to Baa2 from Baa1. They’ve also dropped the junior lien revenue ratings to Baa3 from Baa2.
Concurrently, they assigned a Baa2 rating to the city’s general obligation bonds, series 2024 in the anticipated par amount of $88 million. Post issuance, the city will have roughly $2.1 billion in total debt outstanding.
The downgrade of the ratings is driven by significant declines in fund balance reserves with additional declines expected through fiscal 2025. A lower grade also reflects the increased long-term liabilities expected from consent decree capital needs for the city’s water and sewer systems.
The city’s cash and fund balance reserves fell to 32% and 1% of operating revenue, respectively, in fiscal 2023. Further declines are a result of the city contending with declines in sales tax revenue and the cash funding of capital projects.
The city’s long-term liabilities are also elevated, reaching approximately 444% of fiscal 2023 revenue, inclusive of the Series 2024 bonds.
Fixed costs are high as well at almost 27% of fiscal 2023 revenue and will increase as debt service related to the current and future issuances is layered in.
Positively, the city benefits from a large, stable tax base that is anchored by the institutional presence of several universities as well as nearby Barksdale Air Force Base in Bossier City. Governance is a key driver of this rating action reflecting declining reserves within the city’s enterprise funds as a result of rate increases that have been insufficient to cover expenditures and meet debt service coverage requirements.
