Posted by Steven Glazer , Urban Times News on December 06, 2003 at 07:45:38:

The Bond Watch Continues…
New York City—Bond rating agencies watching closely Jersey City’s proposed debt restructuring said that the city’s bond ratings would be further degraded by a failure to go ahead with the proposed debt restructuring plan put forth by the Cunningham administration.

That proposal won the praise of the State’s Local Finance Board and the State’s treasurer. But council members politically opposed to Cunningham blocked passage of the enabling legislation required to put the refinancing in place. “Absent a restructuring transaction, and if the city just relied on statutory budget process as required by law in the State of New Jersey, then we would look negatively on the city’s credit rating,” said a credit analyst with one of the Big Three rating agencies, Fitch. The analyst, Jessalyn Moro, familiar with Jersey City’s credit rating from previously rating past Jersey City bond issues said that restructuring of the type contemplated by the Cunningham administration “is consistent with what we see from Triple B issuers like Jersey City.”

Moro said that a transaction of the type proposed by Jersey City would typically reflect poorly on the credit rating of a high-grade issuer. But in the case of a Triple B issuer like Jersey City it would be typical, according to Moro. In fact, Moro said, if the City did not do a restructuring transaction, but instead relied on any combination of budgetary measures like workforce reductions and tax increases, there is a possibility that the city could wind up on the credit rating agencies’ credit watch list with negative implications, if these measures were unsuccessful. “The only reason the city is considering a restructuring of this type is because tough financial decisions have been put off. The likelihood that the city will be able to fix this problem through dramatic expense cuts or tax increases in one year is unrealistic.”

A Triple B rating (BBB) is in the lowest investment-grade rating category. Below that on the rating scale is the so-called "Junk" bond range beginning with ratings in the Double B (BB) --and in the "Junk" category of higher risk issuers, interest rates paid on debt of those issuers is historically much higher than rates paid by investment grade issuers. Those bonds rated “Junk” are far more difficult to sell because there are fewer buyers willing to take the credit risk of “Junk” rated bonds, and so must offer buyers the inducement of higher “coupons” as bond interest rates are known.

Conversely, if the transaction went forward as proposed, there would be relative fiscal stability for years into the future and the city’s ability to meet its obligations would actually improve. “The rating agencies have told me independently that this would reflect very favorably on our credit rating and our ability to return to the bond market in the future, should we need to,” said Business Administrator Carlton McGee.

Follow Ups:

• Re: JERSEY CITY BOND RATINGS AT RISK WITHOUT DEBT RESTRUCTURING What a crock! 13:12:45 12/06/03 (2)
  • Another idiotic response from the Chief of Staff BA / BS Detector 15:05:39 12/06/03 (1)
    • Re: Another idiotic response from the Chief of Staff unknown 20:25:52 12/12/03 (0)

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