By Moses Leos III.
With the Bonita Vista and the Westside Well Certificates of Obligation (COs) already on the market, it was only a matter of time before Buda found out who was going to pick up the combined $4.5 million series.
The city got its answer at the Feb. 4 city council meeting. Comerica Bank, which according to Buda’s bond counsel Jennifer Dougas has no Texas presence, was the winning bidder.
That came as a result of the city’s improved credit rating, which jumped two notches – from A+ to AA – on Tuesday. It was a watershed moment for a city whose credit rating has steadily improved over the years.
According to Standard and Poor’s (S&P) Rating Service, which handles corporate and governmental credit ratings, a letter system is used to “express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.”
Their rating system ranges from D, the lowest rating with the most liability, to AAA, which is the surest and strongest.
Prior to the change, Buda held an A+ credit rating, signifying it can make financial commitments, but is susceptible to the economy.
It was not long ago that Buda held a credit rating at the B scale. Sidonna Faust, Buda’s finance director, said the city lacked strong management conditions and financial policy implementation.
However, as management and policy improved, S&P took notice, steadily improving the city’s credit rating.
Faust attributed the higher rating to several factors, including the liquidity of the city’s cast balances. Based on its FY 2012-13 year-end financials, Buda had $10 million in the bank.
According to an S&P letter, Buda has the ability to transfer money from its cash balances to cover debts and expenditures.
The city also holds strong flexibility in its reserves, which Faust said was the result of conservative spending during the last few fiscal years. She added that staying within the city’s budget played a large role in strengthening city reserves.
Potential growth was another factor, Faust said.
“That’s one thing [S&P] looks at. They ask specific questions about the growth plan and population expectations,” Faust said. “The potential for a city’s future plays a strong part in the credit rating.”
What Buda gains from its improved credit rating is better financing from institutions – especially through lower interest rates.
That development already proved to be an asset, as Buda saved nearly a million dollars in interest on the combined Bonita Vista and Westside Well COs, according to Faust.
Comerica gave the city a 2.99 percent interest rate. According to Mayor Todd Ruge, previous COs had interest rates above three percent.
The rating change was a welcome respite, as Buda gained the confidence of the high-profile Wall Street Company.
“Our change was significant for [Comerica Bank] to the lower bid,” Buda City Mayor Todd Ruge said. “They know they will get their money back.”
