Cleveland Sub-Lien Income Tax Bond Rating Lowered To 'AA' On Criteria Application

CHICAGO (S&P Global Ratings) May 17, 2019--S&P Global Ratings lowered its long-term rating and underlying rating (SPUR) to 'AA' from 'AA+' on Cleveland's subordinate-lien income tax bonds and unrestricted income tax bonds (police and fire pension bonds). At the same time, S&P Global Ratings affirmed its AA+' long-term rating and SPUR on the city's general obligation (GO) bonds, reflecting an additional first-lien pledge of the city's 2.5% income tax. A subordinate lien on the total 2.5% income tax secures the subordinate income tax bonds. Securing debt service on the subordinate-lien unrestricted income tax bonds (police and fire pension bonds) is a subordinate lien on the unrestricted portion--or eight-ninths--of the city's income taxes levied at a rate of 2.5%. The outlook is stable.
The rating action reflects the application of our priority-lien tax revenue debt criteria, published Oct. 22, 2018 on RatingsDirect, which factors in both the strength and stability of the pledged revenue as well as the general credit quality of Cleveland (the obligor's creditworthiness).
"The ratings reflect our view of Cleveland's role as the anchor and employment hub for a broad and diverse metropolitan statistical area, a broad and diverse tax base, very strong coverage, and low volatility in the city's income tax revenue activity," said S&P Global Ratings credit analyst Benjamin Gallovic.
The stable outlook reflects our expectation that Cleveland's income tax collections will remain sufficient as a result of ongoing economic growth and development, and will produce very strong debt service coverage.
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