Fitch reaffirms Wilmington credit rating
WILMINGTON – The city’s credit rating was recently reaffirmed by a major rating agency as it prepares for two more reviews ahead of its biennial trip to the bond market.
Fitch Ratings reaffirmed the city’s AA- rating, the fourth highest on its scale, in an Oct. 1 review of the city’s default rate and approximately $84.9 million in outstanding general obligation (GO) bonds.
“Fitch expects that the city will leverage its high budgetary flexibility and available reserves during the current downturn, with the subsequent restoration of fund balance to maintain financial resilience during the ensuing recovery,” the agency’s analysts wrote. “The rating also reflects potential expenditure pressures arising from the city’s public safety spending. In particular, spending pressure associated with employee contracts will continue to drive spending.”
Much like consumer credit scores, municipal or corporate bonds are rated by agencies to determine their financial strength and ability to repay. The better the rating, the lower the interest rate a borrower will pay.
Wilmington Mayor Mike Purzycki touted the reaffirmation, as well as Fitch’s hold on the city’s stable financial outlook, as proof that his administration was properly preparing amid the COVID-19 pandemic’s impact.
“Fitch’s bond rating review indicates that the management of Wilmington’s finances, revenue growth and pension system, continues to be very effective,” Purzycki said in a statement. “In fact, Fitch said in its review that the city’s long-term liability burden will likely remain moderate due to our ability to manage our debt and our decision to fully fund annual contributions to city pension plans.”
The Fitch reaffirmation is the city’s first credit review since Moody’s reaffirmed its rating in April. Fitch’s review comes in advance of the city’s upcoming credit rating reviews with the other two major agencies, Standard and Poor’s and Moody’s, later this month.
On Oct. 1, the city council signed off on a plan to issue GO bonds in late October or early November worth up to $42 million to finance a variety of capital projects, including drinking water and raw water distribution improvements, stormwater management, upgrades to the 11th Street Water Pumping Station and Hoopes Reservoir, as well as street paving, fire station renovations and the purchase of fire apparatus.
Purzycki said that in addition to borrowing money, the city will take advantage of low interest rates to refinance existing bonds for an estimated savings of $7 million, which will help the city balance its budget in the current Fiscal Year 2021 as well as in Fiscal Year 2022.
Fitch analysts noted that the city is on good financial ground after entering FY 2020 with unrestricted reserves to $43.7 million. Although the city reduced its revenue estimates by $7.3 million amid the onset of pandemic, unaudited collections show that revenues “fared materially better than expected,” ending the fiscal year only $400,000 below budget.
Real estate transfer taxes of $5.9 million were well over the budgeted $2.7 million, which helped to offset some of the revenue declines associated with a parking enforcement moratorium and deferment of net profits taxes. The city also froze hiring and suspended a 2% cost-of-living adjustment for all non-union employees. It will utilize $5.4 million of its tax stabilization reserve to balance operations for fiscal 2021 with federal CARES Act funding also coming in to bolster city coffers.
“Fitch expects that the city will utilize its strong reserve position and high budgetary flexibility to address the near-term challenges associated with the pandemic, and if reserves are relied upon, management will take actions to restore them to sound levels once the economic recovery has taken hold,” analysts wrote.
By Jacob Owens