S&P ups credit rating

Standard & Poor’s Rating Services issued an “A+” rating for the City of Andalusia’s finances this week and affirmed “Stable outlook.”

The rating jumped from “A” issued in April of 2016.

“In spite of the difficulty we have in this state and in South Alabama in creating an economy that creates this kind of rating, we’ve done it,” Mayor Earl Johnson said. “That’s what’s important.

“That fact is even made more astounding when you consider we have had three upgrades in last than 18 months. That is rare.”

City Clerk John Thompson said that while all rated agencies are subject to revue at any time, the city has sought revue approximately every 18 months to make sure it is on track with its revenue goals.

The new rating is timely in that the city is about to assist the board of education with a bond issue to fund two major projects at Andalusia High School. The bonds will be secured with the proceeds of a half-cent city sales tax that is earmarked for education.

“This A+ rating will have a very positive impact on what that (financing) costs us,” Johnson said. “We don’t know what that is yet, because the last calculations we saw were based on an A rating.”

The improved rating makes the bond issues investment-grade, the mayor said.

“That means you have more people competing to purchase that, which rives down the interest rate,” he said. “At A+, you do not have to purchase rate bond insurance. But you can buy insurance and run it up to A++. The premium cost on that insurance rating drops significantly.”

In its justification for the rating, the credit-rating agency cited Andalusia’s “very strong liquidity” and “very weak debt.”

“In our opinion, Andalusia’s liquidity is very strong, with total government available cash at 27.1 percent of total government fund expenditures and 3.4x governmental debt service in 2016,” the report states. “In our view, the city has strong access to external liquidity if necessary.”

Report states that S&P believes the city’s liquidity will remain at very strong levels over the next two years, as there are no plans to spend down available cash.

Of the city’s liability profile, S&P said, “Total governmental fund debt service is 79 percent of total governmental fund expenditures, and net direct debt is 290.4 percent of total governmental fund revenue.’

“The stable outlook reflects our opinion that we will not change the rating over the two-year outlook horizon. The outlook reflects our view of the city’s very strong reserves, and that management will continue to maintain balanced operations.”

Both Johnson and Thompson agreed that the improvement is the result of a team effort, and will bring other benefits to the city, as well.

“Our entire city council has worked hard on creating budgets that are very conservative in approach on revenue and spending,” Johnson said. “We took a measure last year of doing away with automatic step raises for our employees. Those are kinds of things difficult to do politically, but improve the financial outlook.

“We will be able to use this as a definitive fact when recruiting business and industry here,” Johnsons said. “We can use it as in, ‘We have great schools, great medical facilities, and by the was, we have an A+ S&P rating.’ That lets them know that we have the wherewithal to do what needs to be done to support expansions.”