WILLMAR -- The Willmar City Council this week sold $1,910,000 million in general obligation bonds to finance this year's street work, but not before being told the city's credit rating dipped slightly, resulting in a 0.1 percent hike in interest cost.
The decrease in rating from Aa2 to Aa3 is due to the negative outlook by Moody's Investors Service on the health care industry, which includes the city-owned Rice Memorial Hospital, explained Kathy Aho, president of financial consultant Springsted Inc., of St. Paul.
Aho said the rationale for the downgrade lies in an increased focus by Moody's on enterprise debt, or debt for enterprises that operate in a business-like fashion such as Rice Hospital and Willmar Municipal Utilities.
Moody's reduced Willmar's credit rating after city officials requested a credit rating from the nationally recognized rating agency. Despite the city's strong finances as evidenced by a healthy general fund balance and a conservative financial management, the city received the one-half notch rating decrease.
In reviewing Rice's finances, Moody's determined that Rice's operations are stable, said Aho, but Moody's has assigned a negative outlook on the health care industry in which the hospital operates.
One primary reason is the continuing downward pressure on medical reimbursements that are affecting income for medical concerns, including Rice, said Aho. She said rating agencies are hesitant to point to a single factor in their determinations, but did cite this as a key consideration.
"The operation of the hospital is stable,'' said Aho. "It's been paying its own way year after year, which we know. It's the health care industry generally and downward pressure on medical reimbursement. Your hospital like other hospitals are caught in the same net.''
Aho said ratings are assigned within major categories with Aaa being the highest rating available. The next rating category, Aa, has three tiers: Aa1, Aa2, and Aa3. The investment grade rating categories then drop to A and Baa. Below Baa, securities are considered to be below investment grade.
Aho said the city continues to enjoy one of the two highest credit categories. The impact of a strong credit rating is to expand market acceptance and to permit lower borrowing costs, she said.
Aho said Rice is an asset for Willmar and the region and is a stable performer.
"They've done well for you, so I think that I would probably focus on that as opposed to the moment's downgrade. And I know that's disappointing news for you to have that occur. But it is something that's out of the council's and hospital's control,'' she said.
With that said, Aho recommended the council approve the low offer of 2.2526 interest rate from UMB Bank, N.A., of Missouri for the sale of the street bonds.
In related business, the council:
n Approved the $1,068,195 bid from Duininck Inc., of Prinsburg for the Willmar Avenue Southwest extension and construction project between 22nd Street Southwest and County Road 5. The project includes a new railroad crossing quiet zone. Other funding sources are state aid funds from the city and Kandiyohi County and revenue from the local option sales tax.
n Approved the low bid of $513,618 from Kuechle Underground of Kimball for the Fourth Avenue Southwest project in the industrial park.