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San Antonio (enviable AAA General Obligation Debt Bond Rating ) - Case Study Example

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Summary
The statistics reveal that San Antonio has exhibited robust growth in their municipality as evidenced from the positive outlook generated by the relevant factors, such as the property values, the employment base, the low cost of living, surplus operations and level of reserves…
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San Antonio (enviable AAA General Obligation Debt Bond Rating )
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San Antonio (enviable AAA General Obligation Debt Bond Rating) A. What do the statistics tell us? The statistics reveal that San Antonio has exhibited robust growth in their municipality as evidenced from the positive outlook generated by the relevant factors, such as the property values, the employment base, the low cost of living, surplus operations and level of reserves. The highlights of the statistical information are noted below:
Factors Contributory to AAA Rating
Patterns Exhibited
Time Frames
Property Values and Taxable Assessed Values
Steady increase from 2008 to 2010 with slight decline in 2011
2008 to 2011
Unemployment Rates
Below level at 7.4% compared to Texas’ (8.1%) and Nation’s (8.8%) rate
March 2011
Per Capita Income
Low at $ 17,487 but the low cost of living along with stable employment helps offset this
March 2011
Surplus Operations and Reserves
Reserves at 9%; equal $85.3 million.
Fiscal Year 2012
From Moody’s official website, the strengths of San Antonio’s condition were aptly summed as: “sizeable regional economy that remained relatively stable through the economic downturn; (and) strong financial management practices demonstrated by a history of surplus operations and adequate reserves” (par. 6). These were validated by the statistics and patterns highlighted above.
a. How do San Antonio’s variables measure up to common variables?
When compared to other common variables, as noted, San Antonio’s unemployment rate which was 7.4% was comparatively low in contrast to the unemployment rate exhibited by the whole of Texas (8.1%) and of the country, in general (8.8%). This is significant considering that, as reported, San Antonio is the only U.S. City with a population over one million to be given a ‘AAA’ bond rating by all three rating agencies. Further, their rating was likewise compared to the ratings generated by other municipalities, such as Columbus, Ohio and Kirkland, Washington; and the following highlights are noted:
COMPARATIVE VARIABLES
MUNICIPALITIES
PATTERNS/COMMENTS
Unemployment Rates
Columbus, Ohio
7.3% as of April 2011
Reserves
Columbus, Ohio
$33 million
Strong Reserves and Strong Financial Policies
Kirkland, Washington
Common Factors with San Antonio
Ongoing growth in local economy and strong management practices
Edina, Minnesota
Common Factors with San Antonio
Strong economic condition, very low unemployment rate & large wealth levels
Arlington, Virginia
Common Factors with San Antonio
It is eminent therefore that rating agencies evaluate the credit ratings of municipalities based on the factors that were revealed. As disclosed by Moody’s, San Antonio’s rating could be changed to lower ratings when the following scenarios occur: “(1) failure to maintain balanced operations; (2) trend of declining reserves; (3) trend of significant taxable value loss indicating a weakening of economic position; and (4) change in the US rating that results in pressure on local
government Aaa ratings” (Moodys Investors Services, Inc. par. 8).
Works Cited
Moodys Investors Services, Inc. "MOODYS ASSIGNS Aaa RATING TO CITY OF SAN ANTONIOS GENERAL IMPROVEMENT REFUNDING BONDS, SERIES 2012;." 26 March 2012. moodys.com. 27 April 2012 . Read More
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