Sedalia, MO Debt Outlook Revised To Negative From Stable On Expected Sales Tax Revenue Decline

CHICAGO (S&P Global Ratings) March 25, 2020--S&P Global Ratings revised the outlook to negative from stable on the city of Sedalia, Mo.'s debt outstanding and affirmed its 'AA-' issuer credit rating (ICR) on the city and its 'A+' long-term rating and underlying rating (SPUR) on the city's certificates of participation (COPs) outstanding. At the same time, S&P Global Ratings assigned its 'A+' long-term rating with a negative outlook to Sedalia's $28.92 million series 2020 COPs.
"The negative outlook reflects our view that the U.S. economy is in a recession and the city's sales tax collections, which make up over 50% of general fund revenue, could sharply decline as a result," said S&P Global Ratings credit analyst Jessica Akey. Based on the possibility of deficit operations, we view the chances of a lower rating as being at least one-in-three during the next two years.
The rating reflects our opinion of Sedalia's:
  • Very weak economy, with projected per capita effective buying income at 63.1% of the national level and market value per capita of $49,236;
  • Very strong management, with strong financial policies and practices under our Financial Management Assessment methodology;
  • Adequate budgetary performance, with operating results that we expect could deteriorate in the near term relative to fiscal 2019, which closed with operating surpluses in the general fund and at the total governmental fund level;
  • Very strong budgetary flexibility, with an available fund balance in fiscal 2019 of 70% of operating expenditures;
  • Very strong liquidity, with total government available cash at 65.5% of total governmental fund expenditures and 10.2x governmental debt service, and access to external liquidity we consider strong;
  • Weak debt and contingent liability profile, with debt service carrying charges at 6.4% of expenditures and net direct debt that is 73.8% of total governmental fund revenue, as well as a large pension obligation; and
  • Adequate institutional framework score.
We could lower the ICR and COP rating if management does not maintain balanced operations during this time of expected declines in sales tax revenue, resulting in substantially decreased operating reserves. We could revise the outlook to stable if management maintains the current level of general fund reserves and overall liquidity.
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