New York, July 27, 2020 — Moody’s Investors Service has assigned an A1 rating to the City of Starkville’s Special Obligation Bonds, Series 2020B (Starkville, Mississippi, Parks and Recreation General Obligation Bond Project). The bonds have an expected par value of $9.5 million. Moody’s maintains an A1 rating on the city’s outstanding GO bonds.
The A1 rating assignment reflects the city’s moderately sized but growing economy inclusive of an expanding tax base and below average resident wealth indicators. The city also benefits from the institutional presence of Mississippi State University (Aa2 stable). The rating is also driven by the city’s narrower than average but consistent reserves that we anticipate will remain stable through fiscal 2020. The city’s pension costs are elevated though the debt burden is manageable.
Since our last review in March, the city reports surplus operations for fiscal 2019 that are in line with our prior expectations. The city also continues to expect to close fiscal 2020 with a modest general fund surplus ranging between $300,000 and $400,000 as a result of a host of budget cuts made in response to the slowing economy. This includes the furlough of 47 staff and other cost saving measures. The city expects to bring back much of the furloughed personnel though it will continue cost controls such as restrictions on travel and equipment purchases and a hiring freeze. The economic effects of the COVID-19 outbreak include a reduction in budgeted sales tax revenues for fiscal 2021. Among the largest contributors to this revenue and economic activity in general is Mississippi State University, which currently plans to open in the fall with a mix of online and in-person class offerings. The impact to the university’s football season is yet unknown though the city has reduced sales tax budgeted sales tax expectations as a contingency.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Starkville is not currently susceptible to immediate material credit risks related to coronavirus in part because the shutdown of the state and local economy was shorter than in many other parts of the county. However, Mississippi state is undergoing a resurgence of COVID-19 cases that could lengthen period to economic recovery for both the state and city. Impacts to Mississippi State University, which is a key institutional presence in the city, will be a key component to our assessment our view of the city’s economy and recovery. The longer term credit impact of the outbreak will depend on both the severity and duration of the crisis. The situation surrounding coronavirus is rapidly evolving. If our view of the credit quality of Starkville changes, we will update the rating and/or outlook at that time.
Outlooks are generally not assigned to local government credits with this amount of debt outstanding.
– Trend of operating surpluses leading to improved reserve and liquidity positions
The Special Obligation Bonds, Series 2020B will be issued by the Mississippi Development Bank. Concurrently, the city will issue a Qualified Obligation. From the proceeds of the special obligation bonds, the Bank intends to purchase the Qualified Obligation bond and, upon purchase, will pledge to the Trustee the Qualified Obligation of the city. The Qualified Obligation will be a general obligation of the city secured by its full faith and credit and ad valorem taxing authority. While the obligation is an unlimited obligation of the city, we note that it intends to rely on sales tax revenues from food, beverage and hotels to make debt service payments.
Starkville will use proceeds from the sale to fund the acquisition and construction of a sports complex.
The City of Starkville is located approximately 125 miles northeast of the City of Jackson (Baa3 negative) and 165 miles southeast of the City of Memphis, Tennessee (Aa2 stable). The city’s economy is largely based in manufacturing and retail and benefits from the presence of a major university. Starkville, along with the cities of Columbus (A3 negative) and West Point, comprise the Golden Triangle region of the state. The city’s estimated population is approximately 25,000.
The principal methodology used in this rating was US Local Government General Obligation Debt published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1191097. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Michael Wertz Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Nicholas Lehman Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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