|
STIFEL
<br />S&P. Therefore, based on our understanding of the City's available assets and the objective of achieving long term financial
<br />sustainability, we do not recommend a lease revenue bond structure.
<br />j , I nF I Ire .. I ,r I I I,.- { I I v I,.I, .+ ' I I , , : 0 , - 11 / l I'_ _
<br />ill, i , nm.it I , IC I , , ,'fI .rt I ry, l..[ty,.. ., " I r )1,1 1 n,.Ii t,
<br />Secure S&P Rating. When the uptick in issuance of POBs began about 18 months ago, underwriters were encoLlraging two
<br />ratings for any issue over $100 million. However, because of the different treatment of PCBs among the three rating
<br />agencies, two ratings often meant split ratings with S&P higher than Moody's and Fitch. More recently, evidence suggests
<br />that the negative impact of split ratings is greater than the positive impact of having two ratings. Therefore, no matter the
<br />size of the 2021 POBs, we recommend a single rating from S&P.
<br />Estimated S&P Rating and Credit Strategy. S&P most recently
<br />affirmed the City's issuer credit rating at 'AA' in January 2020.
<br />Unfortunately, the outbreak of COVID-19 and subsequent r""` w.i,ht ``"`" H.,h '"u' Ra•'"e
<br />mcrr,. E a„Pw"r.., owl 2no I.no I.rn AAA
<br />impact or) the global ernnnmy just n few rnonths later caused Ec,nnmy 30% 3 no 1 r,9 1 R4 AAt
<br />S&P to reevaluate all sectors of municipal finance. While we """°t°"""" 20% 10o 19s 234 AA
<br />Eiy_lu'..y 10% 1.00 2.2, 281 AA -
<br />do not expect any downward rating action (especially since the E_deCta,y P CM11L,rty 10% 1 00 285 s 21 A
<br />City has maintained its strong crediL profile), we do believe iL s_d,;e-ary re, ro,oance m% sao s25 :d1 A
<br />will he diffirult to nhtnin An upgrade in the rurrent economic ''''oot&co,tlnp,CItJabilitcs 10% 4OU 3E 3J4 A-
<br />Estinated Score 220 3 D] 424 33ti+
<br />climate. As the City may already know, S&P takes a fairly Eytim,tedPon R,ting AA 4 ? r 4,4 RRR
<br />transparent, formulaic approach that heavily weighs the as; 474 nnR-
<br />slrenglh of the locdl dnd regiondl economy, rndnagernenl practices dnd policies, budgetary perrorrndnce, liquidity, and
<br />the debt and liability profile of the issuer. Using data from the 2020 CAFR and 2021 Budget, we estimate that the City
<br />would maintain its strong 'AA' rating.
<br />The credit story we plan to take to S&P will address the categories listed above; however, a primary focus will be on the
<br />City's underlying economic fundamentals in light of the COVID-induced economic contraction, the financial management
<br />policies, and Unfunded Employee Pension Liability Cost Reduction Policy it puts in place to ensure the long-term financial
<br />sustainability of the General Fund. Provided below are some initial credit thoughts.
<br />I, .. 1,x, I,,( The only glaring weakness in S&P's 2016 $&P Credit$corecard and Santa Ana Highlights
<br />N
<br />rating report and something outside the City's control.�n9 IflBi
<br />However, since 2016, the City's median household q
<br />income has grown nearly 40%, surpassing national levels.
<br />Market values have skyrocketed, with citywide values
<br />increasing by 260/ over the past S years. Single family
<br />home growth has been equally Impressive, growing by
<br />44% since 2016.
<br />fatlaanalp!p root^era:: Management continues to be one of the "
<br />strongest areas of the City's overall credit profile.
<br />Comprehensive and fully integrated policies and practices a/A "1° "1° "1°
<br />that are regularly reviewed and updated. Most notably,
<br />the City recently slrenglhened its budgeL and reserve
<br />policy in 2017. As we intend in do for S&P during the Practice D—nation
<br />o+o
<br />review process, we have summarized the most important
<br />policies in the accompanying graphic- 10�,r Rud eWr Flexibility: Unlike rndn nei hborin cities, the s r�--.LP " °" ^ " ^^1e ,errs,.=_.
<br />g Y Y� Y g g r � ..,:
<br />r „r . �.1 r r
<br />City has significantly strengthened its budgetary flexibility U,e;E 4ca,F,c rr.,Lt�Lr,ra
<br />over the past year, with operating reserves growing by D „--
<br />„ n
<br />roughly $8 million to a total of $S3 million, representing
<br />16.6% of General Fund ooeratinR reserves (adooted I.. (' w
<br />policy goal). City Council 2312.14 ' ,f10i°,�' '-/9W21I
<br />City of Santa Ana I Proposal to Provide Underwriting Services Page 12
<br />
|