Moody’s Investor Services Again Downgrades Richmond Bonds


For the second time in less than three months, on Tuesday Moody’s Investor Services downgraded the credit rating of bonds held by the City of Richmond. The move comes in response to persistent fiscal mismanagement in Richmond as perceived by the bond credit rating business, including how the City handled its fiscal year 2015-16 budget.

Moody’s downgraded the City’s issuer rating from Baa1 to Ba1, pensions bonds from Baa2 to Ba2, and wastewater revenue bonds from A2 to Baa2.

“The current action downgrading the City's issuer rating…reflects the City's inadequate steps to address its long-term structural imbalance in FYs 2015 and 2016, extremely narrow liquidity, significant General Fund support of poorly performing cost recovery and enterprise funds, and the risks associated with its high level of exposure to variable rate debt and derivatives,”a Moody’s analyst wrote in the report.  

The downgrade of the Richmond’s pension obligation bonds marks continued difficulty in the city’s handling of retirement monies for its employees. The city currently holds $446 million in unpaid retirement debt, which boils down to about $4,150 per resident.

The city’s borrowing of wastewater reserves for short-term liquidity purposes and a city plan to issue additional debt in future resulted in Moody’s downgrading the city’s wastewater revenue bonds. 

On all counts, Moody’s suggests improving the city’s fiscal liquidity but warns that a decline in the city’s tax base could exacerbate the city’s poor credit standing.  

Moody’s previously downgraded the city’s credit rating in late May — citing structural imbalance in the city’s finances and large cumulative debt over the past six years. 

Richmond holds bonds in good standing with other creditors, but the latest downgrade from Moody’s marks continued fiscal hardship for the city.


Photo courtesy of The Mind Unleashed

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  • Richard Libby
    commented 2015-08-06 16:10:09 -0700
    What the article does not point out is that a Baa rating is considered investment grade, while a rating of Ba is not. The ability of the city to further finance itself is seriously hampered in losing its investment grade rating in that many pension plans disallow the holding of non-investment grade rated bonds. The interest rate expense the city incurs as a result will climb substantially. Given that the city also holds a number of derivatives contracts under various legal agreements, these agreements often include clauses requiring the city to maintain a particular credit rating or be in technical default, further complicating the ability of the city to properly manage its finances.
  • Veronica Keeton
    commented 2015-08-05 20:45:47 -0700
    With Moody downgrade and the move forward on rent control/just cause this evenings, which has no start up funding (I’m sure you will try to pull funds from the general fund), Congratulation RPA +1 for sending the City of Richmond into bankruptcy.
  • Barry Nel
    commented 2015-08-05 13:34:46 -0700
    Thanks Councilperson Beckles!
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