CLEVELAND, Ohio – Cuyahoga County’s heavy debt load has led Moody’s to downgrade its ratings as the county issues a line of credit for MetroHealth’s $1 billion transformation and prepares to sell $140 million in bonds for the transformation of Quicken Loans Arena.
Moody’s new ratings maintain the county’s outlook is stable but the downgrade of the planned Q bonds could lead to higher interest rates and costs to taxpayers.
The county last fall had $1 billion in outstanding debt, which affects the short- and long-term ability to provide support and services to its citizens, according to a report by the Center for Community Solutions.
Cuyahoga County hindered by $1 billion in debt, report says.
Cuyahoga County Executive Armond Budish has said that the county has too much debt and cannot seek bonds for additional projects.
The county recently decided it would not sell bonds backed by the sin tax for major renovations to Progressive Field and Quicken Loans Arena.
Following are the ratings by Moody’s on the Q bond proposal and MetroHealth support.
The Q transformation
The county plans to sell $140 million in bonds for renovations to Quicken Loans Arena. The Cleveland Cavaliers plan to pay half the cost. The county is holding three bond sales, including taxable and tax-exempt, for the total amount.
The county has delayed a decision on the sale until the end of the month because of a referendum issue related to Cleveland City Council’s approval allocating $88 million in admissions taxes to the project.
Bonds for Quicken Loans Arena delayed until referendum issue resolved
On Monday, Moody’s Investors Service downgraded Cuyahoga County’s sales tax rating revenue bond sales of $70 million, $35 million and $35 million to Aa2 from Aa1.
It said the expected sale date of the tax-exempt bonds is June 1.
“The outlook on the ratings is stable,” Moody’s said. “Following the sale, the county will have $309 million of sales tax revenue bonds outstanding.”
Moody’s said, “The rating also considers the large economic base from which the tax is generated, solid legal provisions including direct transfer of pledged revenue from the state to trustee and a strong 3.0 times additional bonds test, healthy coverage of maximum annual debt service, and positive sales tax trend.”
While Moody’s said the stable outlook was due in part to a positive trend in sales tax collections, another downgrade could occur if there is a decline in that revenue.
A line of credit for MetroHealth
In April, Cuyahoga County Council agreed to obtain one or more letters of credit from a bank to create an $82 million debt service fund for the MetroHealth System’s $1 billion transformation.
It will cost the county up to $350,000 a year in interest, but will save MetroHealth approximately $160 million on its plans to transform its main campus on West 25th Street.
MetroHealth would have been required to establish a debt service fund when selling the 40-year bonds for the project if the county had not stepped forward.
Cuyahoga County Council agrees to help fund MetroHealth System’s $1 billion transformation
MetroHealth this month sold $945.7 million in hospital revenue bonds at a price that it said saved it millions.
Moody’s on Monday downgraded to Aa2 from Aa1 Cuyahoga County’s general obligation limited tax debt (GOLT) due to the Metro deal.
Moody’s said it also downgraded by one notch the county’s lease revenue bonds, senior and junior lien non-tax revenue bonds, lease appropriation certificates of participation and appropriation guarantee bonds. The outlook on the ratings is stable.
“The downgrade of the GOLT to Aa2 largely reflects the county’s increased leverage both from its direct debt and contingent liability debt of MetroHealth (Baa3 Stable), a component unit of the county,” Moody’s said. “We perceive increased risk associated with the county’s relationship with MetroHealth following the system’s sizable revenue debt sale. The county’s direct debt has also grown substantially.”
Moody’s said “the stable outlook reflects the expectation that the county will maintain a strong credit profile given its extensive tax and revenue base, strong financial position and sound fiscal management practices that include adoption of a two-year budget and quarterly adopted five-year financial forecasts. While risk stemming from MetroHealth has increased, if the system required additional support we expect management would make budgetary adjustments to absorb those costs to mitigate the impact on general operations.
Moody’s said the county faced an additional downgrade if MetroHealth’s financial position weakened, which would raise the risk of increased county operating support.”
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