S&P: Ralston, NE GO Arena Bond Ratings Lowered Seven Notches To 'BB' On Persistent Structural Imbalance; On Watch Negative
"The rating action reflects our view of the city's ongoing structural imbalance that is likely to persist and reflects a materially weaker financial position stemming from its underperforming arena," said S&P Global Ratings credit analyst Blake Yocom. It also reflects the need to cash flow borrow to cover arena expenditures and without it, the city's short-term financial and liquidity position would be worse. The city's liquidity is very weak, coupled with what we view as weak management conditions. Furthermore, Ralston is overleveraged, reflected in a high overall debt burden as a percentage of market value. The city's high debt burden will likely continue to pressure its finances and taxing flexibility.
"Should the fiscal 2016 audit show persistent financial deterioration, compounded with the budgetary stress caused by the arena and the city's impaired overall liquidity position with potentially reduced market access, there could be additional downward rating actions," added Mr. Yocom.
The CreditWatch reflects our view that there is at least a one-in-two likelihood of a rating change within the next 90 days. Failure to provide requested information in connection to the city's privately placed cash flow notes will likely lead to additional negative rating action. After receipt of the documents, we will assess for any potential effect on the city's liquidity.
The city's full faith and credit unlimited ad valorem tax GO pledge secures the outstanding bonds. Ralston used 2011 and 2012 bond proceeds to construct an ice arena for recreational ice sports, spectator hockey games, collegiate basketball, and other public indoor sporting events and performances. Voters authorized $29 million for the arena and related projects in May 2011 with more than 80% approval. The city expected that revenues from the project would be sufficient to cover the debt service on the bonds and that it would not need to levy taxes. However, arena revenues have fallen short and the city began to increase property and other taxes, albeit modestly, in 2015.
We consider Ralston's economy adequate. The city, with an estimated population of 6,202, is in Douglas County in the Omaha-Council Bluffs metropolitan area. It is completely surrounded by the city of Omaha.