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City Cashes in on AAA Ratings

By Jorge Casuso

Jan. 15 -- Santa Monica quickly reaped the benefits of its newly reaffirmed AAA bond rating with a bond sale Tuesday that will reduce the anticipated annual debt service to finance the City's new public safety facility by about $40,000 a year.

The winning bid -- which went to Banc of America Securities -- comes days after both Moody’s Investors Services and Standard & Poors reaffirmed Santa Monica's AAA general obligation bond ratings on Friday, following in the footsteps of Fitch IBCA, which gave the City the same rating a week earlier.

The highest rating from all three agencies make Santa Monica one of only seven cities in the United States to hold AAA credit ratings for general obligation bonds.

"These three bond ratings reflect a tremendous vote of confidence by the national financial community in the City of Santa Monica: the City Council, City staff and its citizens," the City's Finance Director Mike Dennis wrote in an email to City Manager Susan McCarthy on Friday. "As a result of these ratings, the City should be able to sell bonds today at the lowest possible interest rate."

The three agencies also gave AA+ bond ratings-- the highest given to lease revenue bonds -- to the additional Public Safety Facility bonds that went on sale Tuesday morning. Moody’s also upgraded its rating of the city’s Airport and Parking Authority lease revenue bonds from AA3 to AA2 within the AA+ rating.

Banc of America Securities' bid was exceptionally low at 4.397131 percent, or almost 1 percentage point lower than the winning bid on the original Public Safety Facility bonds.

"This was a very successful bond sale," Dennis wrote in an email to McCarthy Tuesday. "In a few days, our Financial Advisor will be comparing this sale to other sales that occurred this morning. This comparison will also show how well we did on this offering."

Following Fitch's lead, Moody's and Standard & Poor's cited the following factors in their rating decisions:

Strong financial performance
Strong and diverse local economy coupled with high income levels
Low debt burden
Strong financial reserves and financial flexibility
Careful financial forecasting

All three rating agencies want the City to keep them informed concerning construction progress on the Public Safety Facility, and the City's actions to deal with the current year revenue shortfall and how the on going revenue gap is closed as part of the Fiscal Year 2002/03 City budget process, Dennis said.