Framingham, MA – As part of the standard practice for financing capital projects for the current construction season, the City of Framingham has issued short term borrowing notes in the amount of $18.7 million. The City received six competitive bids, a robust response from the municipal bond market. The winning bidder was investment company Jefferies, LLC. The net interest rate to the city is a very favorable 1.43%.
Like the average citizen, we check our credit rating before we borrow money. The City sought a credit rating/opinion from Moody’s Investor Services, one of the big three rating agencies. In order to provide that opinion, Moody’s does extensive research and analysis on the current and future credit-worthiness of the City of Framingham. Areas of analysis include the size and stability of the city’s tax base, the income/wealth of the people who live in the city; financial and administrative management; the current and future financial position, including the level and growth of monetary reserves, and ability to sustain structurally balanced operations.
Moody’s rating scale for municipal short term debt (Municipal Investment Grade – MIG) ranges from the lowest rating of SG (speculative grade) to MIG 3 (acceptable credit quality) to MIG 2 (strong credit quality) to the highest rating of MIG 1 (superior credit quality). The MIG1 rating is defined by Moody’s as: Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad based access to the market for refinancing. In laymen’s terms this means Framingham has good cash reserves and a predictable flow of cash from multiple revenue sources. Framingham has also generated investment interest from a varied range of investors, including investment firms and banks; another indicator of Framingham as a good investment.
As part of the credit review for short term borrowing Moody’s will also review the City’s overall credit rating and confirm whether that rating is still valid. The Moody’s credit opinion affirmed the underlying City credit rating of Aa2. The Aa rating are defined as high quality and subject to very low credit risk. This credit rating cited strengths of a sizable tax base, a conservatively managed and stable financial position and a recent increase in unused levy capacity under Proposition 2½. Financial management challenges highlighted by Moody’s include an above average debt burden and the need to balance funding the City’s substantial capital needs with overall stable financial operations. The rating agency also noted a concern about the ability to maintain structurally balanced financial operations due to the increase in the use of free cash to balance the budget, which is a change from prior year budget practices. Moody’s noted it will continue to monitor the City’s budgeting trends given the change in the form of government.