A bond rating is a grade given to bonds that indicates their credit quality. Independent rating services such as Standard & Poor's, Moody's Investors Service and Fitch Ratings Inc. provide these evaluations of a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a timely fashion.
The bond rating is an important process because the rating alerts investors to the quality and stability of the bond. The rating greatly influences interest rates, investment appetite, and bond pricing. The independent rating agencies issue their ratings based on future expectations and outlook.
The City currently carries ratings from Standard & Poor’s and Fitch Ratings on most outstanding bonds. For GO and CO debt, both agencies have assigned a rating of “AAA” which is the highest possible rating. Recent affirmation of the top bond rating recognizes the commitment by City Council and staff to ensuring sound financial oversight of City resources. The ratings demonstrate confidence of the rating agencies in the City’s ability to manage its finances. This allows the City to ensure our tax dollars go farther by borrowing funds at the lowest possible interest rates. This has allowed the City to maintain the second lowest property tax rate for cities over 60,000 in population in Texas for many years.
Utility Revenue Bonds carry a rating that is one notch lower- “AA+” from both agencies and is a high quality rating for utility debt. These ratings reflect the City’s comprehensive long range financial and capital planning efforts and strong financial management practices.
|Rating Agency||GO & CO Debt||Revenue Bonds|
|Standard & Poor’s||AAA||AA+|
This confidence validates that our proactive financial management as reflected in our Financial Management Policy Statements is a key to our success, as recently reflected in the proactive refunding of CO’s issued in 2011 for construction of the Surface Water Treatment Plant and related infrastructure. This refunding resulted in nearly 15% savings over the life of the bonds- approximately $622,000 in annual debt service savings.
Each time the City prepares a new debt issue, rating agencies evaluate the City’s credit rating to assign a bond rating to the proposed bond issue as well as all outstanding bonds of the City. The City provides full disclosure of operations and a broad range of financial information to the rating agencies to assist with their determination of the City’s bond rating.
The City prudently manages the General, Debt Service, Economic Development and Enterprise funds and attempts to issue and structure debt to maintain or increase current bond ratings, as this provides for a lower cost of borrowing.