Moody’s Upgrades Newtown Bond Rating To Aa1

By John Voket

It was a pleasant surprise and not altogether expected. But Moody’s Investors Service, the international bond rating agency, has recalibrated its municipal ratings and on Tuesday, awarded Newtown an upgrade from Aa2 to Aa1, just one step below a perfect credit score.

Finance Director Robert Tait said the news came as part of a sweeping move by Moody’s to apply “a fairer standard” by which to rate municipal governments and other government entities. This recalibration is designed to put Moody’s municipal rating and qualifying processes on par with the way the agency has rated private entities.

In a recent report, The Bond Buyer spoke to Moody’s Group Managing Director Gail Sussman who said the rating agency is “responding to the evolving needs of the market for greater comparability between the ratings of these obligations and those issued by other entities such as corporations.”

“The recalibration of the ratings represents a move from their expression on one scale to another and does not represent a change in our opinion of the credit quality of the affected issuers,” she added.

According to the report, Moody’s has used a separate rating scale for US municipal bonds since 1918. But in recent years, issuers, lawmakers, and other market participants have complained that that rating scale is unfair because municipal bonds generally are rated lower than corporate debt even though they have much less of a chance of going into default.

Earlier this year, and for the first time in many years, Newtown chose to seek a bond rating from Moody’s main competitor, Standard & Poor’s, which subsequently resulted in not only a Aa+ rating, but was followed by a bond refunding and a short-term borrowing initiative that awarded Newtown historically low borrowing rates.

These reductions have already saved local taxpayers in excess of $1.2 million. Mr Tait said the next time he will be positioned to test the waters with Newtown’s dual Aa1 ratings will be when he initiates short-term borrowing for the middle school roof project some time after July 1. He is hoping the Moody’s upgrade in conjunction with the S&P upgrade will bode well for even lower rates on that next Bond Anticipation Note (BAN) offering.

Mr Tait said when seeking a new or upgraded bond rating, the town pays a fee to each rating agency involved, but that since the Moody’s action came from the agency voluntarily as part of its recalibration and homogenizing of commercial to municipal ratings, there was no added cost to the town to receive the Moody’s bump.

The finance director said he does not anticipate using more than one agency when he goes out for the middle school project BANs.

“Some towns feel they need to use two or even three ratings agencies when they are going out to bond,” Mr Tait said. “But I foresee Newtown only using one agency going forward.”

Newtown’s bond agent, Barry J. Bernabe, vice president of government banking at Webster Bank, said the community “is now only one notch from Aaa from Moody’s [similarly to S&P]. Congratulations. This should help lower the town’s borrowing cost!”