Thursday, March 18, 1999

S&P lowers
bond rating

But the city is happy since
the slim downgrade still leaves its
rating in the high range

By Russ Lynch


Two respected rating services have given less than perfect scores to $445 million worth of general obligation bonds to be issued by the City & County of Honolulu.

However, Roy Amemiya, city finance director, said the city is pleased with the ratings because they are still in the high range.

Standard & Poor's gave the new issue an AA-minus rating, fifth from the top in its system that starts with AAA and runs through AAA-minus, AA-plus and AA before getting to AA-minus.

At the same time, S&P lowered its rating on the existing $1 billion-plus in city bonds to AA-minus, from AA.

S&P said the addition of a plus or minus means only slight positive or negative change in the outlook.

Fitch IBCA, an international firm that has become a major rater of U.S. bonds in recent years, gave the Honolulu issue its AA rating. That is Fitch's third-highest rating, after AAA and AA-plus.

Fitch also rated the existing Honolulu bonds as AA, its first rating for those issues.

Ratings by recognized rating services such as Fitch and S&P can affect the interest the city will have to pay to raise the money. Generally, higher ratings mean lower interest costs.

Both firms' ratings bring the Honolulu bonds well within what they define as investment-grade issues.

The firms said one reason their ratings were not higher was the continuing weakness in the economy caused by a slowdown in tourism from Asia.

Both said Honolulu's economy is basically sound and the city has a good financial track record.

S&P noted that $345 million of the 1999 bonds, expected to be sold next week by a syndicate headed by Merrill Lynch & Co., will be used to refinance some of the city's existing debt, saving an estimated $27 million in the year ending June 2000.

"A significant debt restructuring program is fundamentally sound, but a symptom of the ongoing financial strain," S&P said in statement, noting that the 1999-2000 budget has a gap of $130 million that will have to be made up by raising property taxes or finding some other revenue.

The Fitch report said Honolulu has strong credit because of the "sound fundamentals of its tourism-based economy and strong financial operations."

However, tourism activity has been stagnant for the last decade, which has weakened property values.

"Financial operations are strained, but satisfactory," the Fitch report said.

Amemiya said the city doesn't view the S&P rating as a downgrade because it is just a slight step from an already high rating.

"We're certainly pleased that the rating agencies continue to view the City & County of Honolulu as financially astute," he said.

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