Louisville closes $45 million bond sale; maintains strong credit ratings amidst pension challenges
Louisville Metro Government today closed on its sale of $45 million of tax-exempt bonds to Morgan Stanley & Company, with nationally recognized credit rating services S&P Global Ratings and Moody’s Investors Service again affirming the city’s positive bond ratings of AA+ and Aa1, respectively.
Both credit rating agencies cited Louisville’s vibrant economy and sound fiscal management as strengths — but also expressed concern regarding Louisville’s growing state pension obligations and relatively low fund balance, commonly known as the Rainy Day Fund.
The bond sale will provide long-term funding to capital projects from the FY19 budget that had been temporarily funded with a line of credit. The competitive sale generated bids from 11 companies and resulted in a True Interest Cost (TIC) of 1.89 percent for the city.
“Louisville continues to receive external validation, from both independent rating agencies and the credit markets, that we are well-run with an expanding economy,” said Mayor Greg Fischer. “But they also recognize that we will have very limited opportunities to invest in ourselves the way our peer cities are doing because of the growing and sustained state pension increases, unless we structurally address them through either new revenue or continued budget cuts.”
The bond proceeds will fund a variety of projects from the FY19 capital budget, including the completion of the recently opened Northeast Regional Library and the Metro Animal Services shelter. Projects also include ongoing maintenance and repair projects related to street paving, sidewalks, bridges, parks, the Zoo, Metro facilities, and public safety vehicles.
S&P again affirmed its second-highest rating of AA+ with a stable outlook for Metro Louisville.
In its report, S&P factored in Louisville’s “strong economy” and “strong management” but warned that their assessment “could be weakened in the future if we believe its budget shows signs of strain in accommodating future pension contributions.”
Moody’s again affirmed its second highest rating of Aa1 with a stable outlook for Metro Louisville.
Moody’s report cited Louisville Metro’s “sizeable and growing tax base serving as a regionally important economic hub” as a factor in assigning the Aa1 rating, but also expressed the city’s credit challenges related to “lower reserves and liquidity relative to national peers” and a “higher pension burden compared to medians for the rating category.”
The rating agencies recognized the strength of Louisville’s economy, evidenced by $14 billion of capital investment since 2014, 80,000 new jobs and 2,700 new businesses since 2011, rising wages and an unemployment rate below four percent, said Louisville Metro Chief Financial Officer Daniel Frockt.
“Mayor Fischer’s vision of an equitable and vibrant Louisville continue to garner positive results when we go to the capital markets,” Frockt said. “We are also receiving feedback that we will need a longer-term plan to address the mounting pension obligations over the next several years.”
On Thursday, Frockt will be providing an update on the sale and credit reports to the Metro Council Budget Committee.