Coralville last week saw its Standard & Poor’s bond rating reduced, from BBB+ to BB+, which puts the city in what the ratings agency deems “noninvestment grade” territory.
The ratings downgrade was motivated by financing plans for the Iowa Arena project, the S & P said in a Dec. 20 statement.
“The city is issuing both (General Obligation)-supported debt and GO annual appropriation debt to support the project,” the S & P statement said. “Most of this, about $41 million, is to be funded with bank loans on a variable rate basis.”
The interest on the bank loans is fixed for five years, the S & P noted, but resets on the fifth year.
“There is no maximum interest rate, which in our view exposes the city to interest rate risk,” the S & P statement said.
S & P Global Ratings credit analyst Helen Samuelson said in the statement that, “The lowered rating reflects our view of the city’s heightened debt burden with very high fixed costs, its exposure to high interest rates on its bank loans, and weakened financial flexibility and performance as the city moves forward with its plans to construct a major economic development project centered on an arena.”
“We do not anticipate that the pressure from all of this debt will abate, and it could be challenging through multiple economic cycles.”
The 5,716-seat arena is scheduled to be ready in 2019.