By Dave Fidlin
Correspondent
The Village of Waterford entered uncharted territory this week, and officials viewed the news as good.
The municipality officially was given a bond rating of AA- by venerable credit rating service Standard & Poor’s. The rating means the agency deems the village a low credit risk – an important issue when it comes to borrowing funds.
This is the first time village officials have sought a credit rating. The desire to take out $5.03 million in general obligation refunding bonds was part of the reason officials sought Moody’s opinion of the village’s financial health.
The new bonds, in turn, are being applied toward outstanding debts that carry higher interest rates. Village Treasurer Lori Peternell said the assignment of a credit rating gives Waterford a greater chance of obtaining debt with lower interest rates.
The new general obligation refunding bonds, with a 1.7-percent interest rate, will be applied toward existing lease revenue bonds that are attached to the municipality’s Community Development Authority (CDA).
The existing debt, taken out nearly a decade ago, has interest rates ranging from 4.2 to 4.75 percent.
In recent months, the village has enlisted the services of Jim Miller, a municipal bonds specialist with Milwaukee-based independent public finance consulting firm Hutchinson, Shockey, Erley and Company. The village has paid $14,000 for Miller’s expertise.
At a Village Board meeting Aug. 25, Miller revealed the village stood to save $863,083, over the long haul, by paying off the CDA lease revenue bonds and supplanting that debt with the new general obligation refunding bonds.
“You had seven bidders,” Miller said of the general obligation refunding bonds. “It’s turned out to be a huge savings to the Village of Waterford.”
With Miller’s guidance, village officials are attempting to strike while the iron is hot. Peternell said there is a provision within the existing CDA lease revenue bonds that states they are callable Oct. 1 without penalty.
Standard & Poor’s has a ratings system similar to another well-known agency, Moody’s. In Standard & Poor’s case, Waterford’s AA- rating is the fourth of seven rankings on its investment grade scale.
The top end of Standard & Poor’s investment grade scale is AAA. The village came in on Standard & Poor’s second investment grade scale of AA, where there are three subcategories: AA+, AA and AA-.
Miller explained the rationale behind the AA- ranking at Monday’s meeting. While the village is in good financial health, location might have played a role in the fourth-place standing.
“One thing that hurts Waterford is it’s in Racine County,” Miller said. “People don’t see it as being in close proximity to Milwaukee and its job market.”
Regardless, the AA- rating is proof investors show confidence in Waterford. Standard & Poor’s definition of any of the AA level ratings states, “An obligor … has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.”
From a comparative standpoint, Peternell said she views the ranking as a positive for the community and its future borrowing needs. Two Wisconsin municipalities have an AAA rating, 10 fall within the AA+ category and 66 are in the AA range.
“Out of a total of 286 rated municipalities in the state of Wisconsin, only 78 have a rating that is higher than the Village of Waterford,” Peternell said.
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