OREANDA-NEWS. S&P Global Ratings assigned its 'A' rating to the City of Ouray, Colo.'s sales tax revenue bonds, series 2016. The outlook is stable.

"We view Ouray's good maximum annual debt service coverage as a key credit strength," said S&P Global Ratings credit analyst Michael Stock.

The rating reflects our assessment of the city's: Good coverage of maximum annual debt service (MADS) at 3.3x, based on the unaudited 2016 adopted budget; and Use of pledged revenues, after debt service, to support general governmental operations, which is likely to insulate coverage well above the 1.5x additional bonds test (ABT). These strengths are tempered by the potential for cyclical sales tax collections, given all the top sales tax generators are in the hospitality and tourism industry.

The 2016 bonds are secured by an irrevocable first lien on revenue received from a 3.5% sales tax, which is a portion of the total sales tax rate of 4%. The proceeds from the 2016 bonds will be used finance improvements to the city's hot springs pool facility and pay for the cost of the bonds' issuance.

The stable outlook reflects our opinion that Ouray will likely continue to experience sales tax growth that will allow for similar, if not improved, debt service coverage. It also reflects the city's lack of additional debt plans despite its legal ability to dilute coverage to 1.5x MADS, in accordance with the ABT. Given this, we do not expect to change the rating during the outlook's two-year horizon.

Improved debt service coverage levels alongside improved diversification of the city's top sales tax generators, more in line with those of higher rated peers, could result in a higher rating, assuming all other rating factors remain constant or improve.

While we do not expect it to occur, a material weakening of DSC could place downward pressure on the ratings.