Loading...
HomeMy WebLinkAbout09(A) - Resolution Approving the Issuance and Sale of General Obligation Bonds Series 2024A ReportSummary: Prior Lake, Minnesota; General Obligation Primary Credit Analyst: Melody W Vinje, Englewood + 1 (303) 721 4163; melody.vinje@spglobal.com Secondary Contact: Jessica Olejak, Chicago + 1 (312) 233 7068; jessica.olejak@spglobal.com Table Of Contents Credit Highlights Outlook Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 1 Summary: Prior Lake, Minnesota; General Obligation Credit Profile US$2.94 mil GO bnds (2024 Projects) ser 2024A dtd 08/17/2024 due 12/12/2044 Long Term Rating AAA/Stable New Prior Lake GO Long Term Rating AAA/Stable Affirmed Prior Lake GO Long Term Rating AAA/Stable Affirmed Prior Lake GO Long Term Rating AAA/Stable Affirmed Credit Highlights • S&P Global Ratings assigned its 'AAA' long-term rating to Prior Lake, Minn.'s $2.9 million series 2024A general obligation (GO) bonds. • At the same time, we affirmed our 'AAA' long-term rating on the city's existing GO debt. • The outlook is stable. Security The bonds are secured by the city's GO unlimited property tax pledge. Debt service on the series 2024A bonds is also payable from special assessments. We rate to the unlimited-tax pledge because we have insufficient information under our rating criteria for a credit opinion on the other revenue stream. Proceeds will be used to finance stormwater system improvements and street improvements. Credit overview Prior Lake's extremely strong financial performance, maintenance of high reserves, strong financial management, steady residential growth, and high income levels anchor the 'AAA' rating. The city ended fiscal 2023 in line with historical positive results, using surplus funds to finance capital improvements and add to general fund reserves. The fiscal 2024 balanced budget reflects an uptick in public safety costs and general operations. Between the city's tax base growth and levy adjustments, we believe Prior Lake will have sufficient revenue flexibility to maintain balanced operations. Tax revenues make up 67% of general fund revenues, which the city anticipates will trend positively due to greater net tax capacity from new buildings and planned levy increases. The current budget also includes a small use of reserves (about 1% of expenditures) for carry-forward projects from the prior year; over halfway through the fiscal year, management reports performance is trending in line with budget. Our analysis of the city's budgetary performance reflects adjustments made for recurring transfers, one-time expenditures, the spending of bond proceeds, and adjusted debt service costs paid by water enterprise fund transfers. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 2 Prior Lake is considering three issuances totaling $60 million from fiscal years 2026 to 2030 for park and trail improvements, to be financed by a separate debt levy. Although not required for Prior Lake to issue this debt amount, the city is in the preliminary planning stage of reviewing whether it will move forward to seek tax-base approval through a voter referendum in November 2025. The city's current capital plan for 2025 to 2028 includes $30.3 million in additional debt, excluding the potential voter-approved debt for park improvements. Financial forecasts provided by management for both scenarios demonstrate continued positive operations, maintenance of reserves in line with its policy, and rapid amortization of its debt. Based on our analysis, if the city moved forward with issuing $20 million in 2026 for park and trail improvements along with its other planned bond issuances, the debt profile may fluctuate between adequate and strong levels in the outlook period. However, we anticipate that fixed costs would rise significantly in later years, beyond our outlook horizon, with issuance of the total proposed $60 million in combination with current capital financing plans and potentially pressure the debt profile score. The city has a 2014 private lease-purchase agreement with approximately $300,000 outstanding. Events of default are standard under the agreement. We therefore do not consider the lease-purchase agreement to be a contingent liability risk, and we expect the city's liquidity will remain very strong. The rating further reflects our view of the city's: • Growing tax base driven by residential development, with incomes well above the national average. Residents benefit from the city's location about 24 miles southwest of the Twin Cities and participation in the St. Paul-Minneapolis-Bloomington metropolitan statistical area; • Consistently strong budgetary performance, typically with operating surpluses, supporting very strong budgetary flexibility and liquidity. Our calculation of available reserves includes legally available funds for general operations per council's approval; • Very strong management, including a fund balance policy of 40% to 50% of general fund expenditures, which the city routinely exceeds, and a strong institutional framework score; • Debt-and-liability profile that has improved to strong from adequate, given moderation of its debt service carrying costs and continued rapid amortization. The city has additional debt plans of about $15.2 million to $26.4 million in the next two years depending on council's decision to seek tax-base approval through a voter referendum in November 2025 and outcome of said referendum; and • Contributions to two multi-employer defined-benefit pension plans administered by the Public Employee Retirement Association of Minnesota and single-employer other postemployment benefits (OPEB). The pension plans are adequately funded (86.5% and 83.1% as of June 30, 2023) and annual contributions are based on a statutory formula that is not actuarially based, increasing the likelihood of outyear cost acceleration. The OPEB plan is pay-as-you-go funded (0% funded as Dec. 31, 2022), with a $960,000 liability. Annual costs remain low as a share of spending, and the city has ample operational flexibility to accommodate higher costs as they materialize. Environmental, social, and governance We analyzed the city's environmental, social, and governance risks relative to its economy, management, budgetary outcomes, and debt-and-liability profile, and view them as neutral within our credit analysis. We note that the city could be susceptible to occasional flooding in areas located around the lake. However, we believe this risk is mitigated by the city's flood-response policy and maintenance of very high reserves. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 3 Summary: Prior Lake, Minnesota; General Obligation Outlook The stable outlook reflects our expectation that Prior Lake will maintain balanced operations supported by its growing tax base, phased-in levy increases, and comprehensive long-term planning. Downside scenario We could lower the rating if financial performance and reserves weaken substantially, particularly if reserves fall well below the city's reserve policy without a credible plan to restore to compliance of if fixed costs outsize the budget. Rating above the sovereign Prior Lake's GO bonds are eligible to be rated above the sovereign because we believe the city can maintain better credit characteristics than the U.S. in a stress scenario. Under our "Ratings Above The Sovereign—Corporate And Government Ratings" criteria (published Nov. 19, 2013 on RatingsDirect), U.S. local governments are considered to have moderate sensitivity to country risk. The institutional framework in the U.S. is predictable for local governments, allowing them significant autonomy and independent treasury management, and there is no history of federal government intervention. We believe Prior Lake's financial flexibility is sufficiently demonstrated by its very strong budgetary reserves and liquidity and its ability to levy and collect own-source revenues. Prior Lake, Minnesota--Key credit metrics Most recent Historical information 2023 2022 2021 Very strong economy Projected per capita EBI % of U.S.160.8 Market value per capita ($)211,874 204,470 180,839 164,641 Population 28,439 27,461 27,026 County unemployment rate(%)2.3 Market value ($000)6,025,493 5,814,922 4,966,019 4,449,577 Ten largest taxpayers % of taxable value 3.3 Adequate budgetary performance Operating fund result % of expenditures 3.0 0.1 1.9 Total governmental fund result % of expenditures (7.4)(1.2)(3.0) Very strong budgetary flexibility Available reserves % of operating expenditures 77.2 88.1 92.1 Total available reserves ($000)13,907 14,313 13,802 Very strong liquidity Total government cash % of governmental fund expenditures 148.7 167.5 164.3 Total government cash % of governmental fund debt service 1,110.1 964.4 926.7 Very strong management Financial Management Assessment Strong Strong debt & long-term liabilities Debt service % of governmental fund expenditures 13.4 17.4 17.7 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 4 Summary: Prior Lake, Minnesota; General Obligation Prior Lake, Minnesota--Key credit metrics (cont.) Most recent Historical information 2023 2022 2021 Net direct debt % of governmental fund revenue 92.3 Overall net debt % of market value 2.2 Direct debt 10-year amortization (%)97.4 Required pension contribution % of governmental fund expenditures 4.4 OPEB actual contribution % of governmental fund expenditures 0 Strong institutional framework EBI--Effective buying income. OPEB--Other postemployment benefits. Data points and ratios may reflect analytical adjustments. Related Research Through The ESG Lens 3.0: The Intersection Of ESG Credit Factors And U.S. Public Finance Credit Factors, March 2, 2022 Ratings Detail (As Of July 12, 2024) Prior Lake GO bnds Long Term Rating AAA/Stable Affirmed Prior Lake ICR Long Term Rating AAA/Stable Affirmed Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.spglobal.com/ratings for further information. Complete ratings information is available to RatingsDirect subscribers at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.spglobal.com/ratings. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 5 Summary: Prior Lake, Minnesota; General Obligation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 12, 2024 6 STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating- related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Copyright © 2024 by Standard & Poor's Financial Services LLC. All rights reserved.