Ratings – How They Impact Bond Issues
Submitted by Kathy Cruz, Manager

With ever changing economic trends, it is valuable to understand how governmental units are rated and how this rating can impact bond issues. Higher bond ratings result in lower interest expense and less financing costs, such as bond insurance. Therefore, understanding bond rating criteria is a key component of fiscal management.

Many factors are considered when determining your credit rating, including: tax base growth, demographic changes, management practices, financial profile, cash position and current and future debt needs.

When conducting a rating review, the rating agency will consider all the circumstances by which your financial profile might change. You can show your ability to weather financial changes by:

• Ensuring that the budget accommodates for decreases in revenue sources and changes in the financial profile;
• Providing some cushion to alleviate immediate financial concerns and maintaining healthy fund balances;
• Demonstrating sound management practices to deal with potential revenue difficulties; and
• Having various financial policies and procedures in place, documented and reported to the governing body.

A credit rating is a current opinion of creditworthiness and expresses the ability and willingness to repay bonds. The above-described considerations help determine that ability and willingness, and will have a direct impact on the rating.

If you have questions regarding the rating process or need assistance, please contact us at footnotes@umbaugh.com.